Will Bankruptcy Get My $15,000 Back?
By Michael G. Doan, San Diego Bankruptcy Attorney on Feb 23, 2008 in Bankruptcy Practice and Procedure, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, General Bankruptcy Information
It happens quite frequently. A lawsuit is filed, supposedly served on the debtor, no response is filed by the debtor in court(since the sewer service usually never notifies the debtor in the first place), default judgment gets entered, and then the consequences: wage garnishments, bank levies, real estate liens. Does bankruptcy help?
As the lawyers always loves to say, it depends! Generally speaking, if the taking took place within 90 days of filing a bankruptcy petition, if it was involuntary, and if it could have been exempted(protected) in bankruptcy, then the property can be recovered.
So, if 2 months ago you woke up one morning to find that your bank transferred $15,000 to some creditor who got a judgment against you, it may very well be possible to get that money back with a bankruptcy proceeding. Moreover, if the transfer was to an insider, the look back period goes from 3 months to a year. So if the soon to be ex-spouse suddenly invaded the bank account after separation, bankruptcy could get that money back too.
Under 11 USC 547 of the Bankruptcy Code is the “Preference” statute. The purpose of the statute is to create an even playing field and avoid some creditors from getting an unfair share of distributions over other creditors, and prevent debtors from moving and hiding certain property the night before filing bankruptcy.
Likewise, it’s there to protect the innocent debtor to allow recovery of certain recent takings to further the fresh start. So essentially, certain transfers prior to filing a bankruptcy are undone to level the playing field.
Frequently we have clients coming in with wage garnishments and judgment liens. One of the first things we do is check to see if any monies have been taken. It’s not uncommon for someone to come into my office and finally decide to file bankruptcy after being garnished for a year or longer.
In California, a 25% garnishment on a $48,000 salary translates into about $1000 per month. Since three months is usually about $3000, my clients are very pleased when I tell them the bankruptcy is free provided they agree to split the money I get back for them!
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