Bankruptcy law can be a complex area of law and can involve litigation. It is important to understand the types of litigation that can occur during bankruptcy.
In a bankruptcy, creditors have the right to file a lawsuit asking that their particular debt not be discharged or that the debtor’s bankruptcy be denied. The bankruptcy trustee also has the right to sue the debtor if the trustee suspects that there was fraud in the bankruptcy petition. Both of these are known as adversary proceedings.
If you’re sued, don’t panic. At Levitt & Slafkes we have experience in helping our clients successfully defend all types of bankruptcy litigation. In this blog we will explore 3 key types of bankruptcy litigation: objections to discharge, preference actions and fraudulent conveyances.
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Objections to Discharge
Overview of an objection to discharge: An objection to discharge is a lawsuit filed by a creditor or the bankruptcy trustee to stop a debtor from getting their debts discharged. A discharge eliminates the debtor from personal liability for debts, meaning they are no longer legally obligated to pay those debts. For a full discussion on what a discharge is, see our article on what debts are discharged in bankruptcy.
Why an objection to discharge matters: The purpose of the objection to discharge is to make sure that a debtor who engaged in dishonest or improper conduct does not benefit from filing bankruptcy. If the objection is successful, the debtor will be denied a discharge, leaving them legally responsible to pay their debts. Often, however, these claims can be dismissed with a simple motion and the discharge granted.
Common Reasons for Objection:
- Fraudulent Misconduct of Debtor: If the debtor engaged in fraud such as hiding assets or falsifying financial documents.
- Failure to Keep Records: If the debtor did not keep the accurate financial records required by the bankruptcy code.
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Preference Actions
Overview of preference action: A preference action is when the bankruptcy trustee tries to characterize one of your transactions that was done shortly before the bankruptcy as a preference. A preference is when you transfer something of value to a creditor within a certain time period before the bankruptcy was filed. The goal is to get back the preferential payments for the bankruptcy estate so they can be more equitably distributed to all of the creditors.
Why preference action matters: If the bankruptcy trustee wins, they can recover the value of the transfer from the person who received the transfer.
Key Aspects of a Preference:
- Timing of the transfer: Generally, preference actions target payments made within 90 days before the bankruptcy filing. For payments to insiders (e.g., family members) this period extends to one year.
- Nature of the Transfer: The transfer must have been made while the debtor was insolvent and resulted in the creditor receiving more than they would have in a bankruptcy case.
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Fraudulent Conveyances
Overview of fraudulent conveyances: Fraudulent conveyance actions are legal challenges brought by a Trustee where a debtor transfers property or assets with the intent to defraud creditors, or when the transfer occurs for less than reasonably equivalent value, impairing the debtor’s ability to repay debts.
Why fraudulent conveyances matter: These actions are important to prevent debtors from hiding assets from their creditors by transferring the assets out of reach before filing for bankruptcy. By challenging these transactions, creditors can recover assets that should be available for debt repayment.
Types of Fraudulent Conveyances:
- Actual Fraud: Involves evidence that the debtor intended to defraud creditors through the transfer.
- Constructive Fraud: Occurs when a transfer is made for less than fair market value while the debtor is insolvent, even if there was no fraudulent intent.
Common Examples of Fraudulent Conveyances:
- Gifting Assets: Transferring property such as a house or a car to family members or friends without receiving fair market value in return.
- Selling Assets Below Market Value: Selling property at a price significantly lower than its market value.
The Law Firm of Levitt and Slafkes Has Extensive Experience with Bankruptcy Litigation
At Levitt and Slafkes, P.C. we help businesses and individuals who have serious financial problems. As bankruptcy attorneys, we know that creditors sometimes object to not being paid. Trustees may see fraudulent activity where there really isn’t any.
We have a thorough knowledge of the bankruptcy laws and will use that knowledge to defend you if a creditor or trustee files a lawsuit against you.
Schedule your free consultation today.
Give us a call at 973-323-2953 or contact us online to schedule a free consultation.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.