One of the reasons you should consider hiring an attorney to guide you through the bankruptcy process is that it can be a minefield. Just like you wouldn’t attempt a Class IV rapids or scale Mt. Everest without professional help from an experienced guide, filing bankruptcy without an attorney has the potential to get a person into danger.
A prime example of one of the perils of filing bankruptcy without an attorney are what can happen if you’ve given any money to family members within the year prior to filing. When your attorney completes your petition, she will have to include any such payments on the Statement of Financial Affairs (the “SOFA”). The bankruptcy trustee will scrutinize your SOFA since Section 547(b) of the Bankruptcy Code provides that:
the trustee may avoid any transfer of an interest of the debtor in property—(1) to or for the benefit of a creditor;(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;(3) made while the debtor was insolvent;
(4)made—(A) on or within 90 days before the date of the filing of the petition; or(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5)that enables such creditor to receive more than such creditor would receive if—(A) the case were a case under chapter 7 of this title;(B) the transfer had not been made; and(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
What that means is that the trustee can force whoever you gave this money to to turnover those funds. Then he’ll distribute those funds to the rest of your creditors who make a claim (after taking out some for his commission, of course).
If you have made these kinds of payments, you have some choices to make: you can file now and disclose the payment and see what the trustee does. If the amount is relatively small, say a few hundred dollars, it’s possible that the trustee won’t want to spend any time pursuing his claim. If the trustee does think that it’s worth his time, he may offer the option of either letting you settle it, or he will go after your family member. Naturally, you’ll want to talk to this family member before you file to give him or her the heads up that the trustee might be contacting them.
Your attorney can also try to argue with the trustee that these funds fall under the exception listed in Section 547(c)(2) of the Bankruptcy Code, which states that a trustee may not avoid a transfer:
to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was—(A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or(B) made according to ordinary business terms