I was sitting in a Section 341 Creditors’ Meeting a year or so ago and a somewhat elderly lady was at the table with the chapter 7 trustee. She had filed her petition herself and she was answering the trustee’s questions.
The trustee asked her about real estate that she had transferred. She replied that it was her house and she had “deeded it to her son–but it’s okay because it was paid for.”
Needless to say, all of us lawyers awaiting our cases immediately stopped talking and started listening.
The United States Bankruptcy Code is a complex set of rules attempting to fairly regulate the rights between creditors and debtors. While the workings of the Code are not overly complex in most instances, it dictates results that, for people unfamiliar with the bankruptcy system, you might not expect.
For example, one of the goals of bankruptcy is to treat all creditors of the same class equally. That is why you are required to list payments to creditors made within 90 days of your bankruptcy filing. A bankruptcy trustee can sue the creditor to get that money back so it can be divided up among all the creditors of that particular class. It is called a preference. Most people would tend to think that once a creditor was paid before bankruptcy, that would be the end of it. Nothing could be further from the truth and the Code is full of rules such as this.
Because of the intricacy of these rules, it is vitally important that you lay out all of your financial dealings for your attorney. Many times, people will consider a certain transaction unimportant and omit telling their bankruptcy lawyer about it. Perhaps they titled a car to their son a short time before filing bankruptcy. But these things can have a dramatic impact on a bankruptcy case.
By informing your lawyer about everything, you put your lawyer in a position to help you the most. Your lawyer cannot help you if he or she does not have a full version of your financial situation. You could stand to lose property or possibly not get a debt discharged or even not get a bankruptcy discharge at all–which is the whole reason you filed bankruptcy. At the least, you may incur additional legal fees that could have been avoided had your told your lawyer everything.
As for the sweet, little old lady? Because she had “deeded” her house to her son, the trustee was able to sue the lady’s son and get the house. The house was then sold to pay the lady’s debts. Incidentally, had she sought the advice of a lawyer, her house could have been saved.
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