Red Flags in Bankruptcy

There are certain financial actions that can be considered red flags if they are made in advance of filing for bankruptcy in Arizona. Before you make any irregular, unscheduled, or large payments or gifts to creditors, family members, or anyone else, consult with an experienced bankruptcy attorney to be certain that you are not unintentionally waving one of these red flags.

Paying creditors – or not paying creditors – prior to filing for bankruptcy.

Any payments made prior to an AZ bankruptcy filing will be reviewed by the bankruptcy trustee. You must make payments to all of your creditors or to none of them; paying just some of your debts means showing preference for one creditor over another. Since all creditors are treated equally in the AZ bankruptcy process, any payments that appear to show favoritism can be recalled.

Any payments that you make to creditors can be taken away from that creditor and returned to the trustee within a 90 day period of your bankruptcy filing. That period is up to one year for payments made to an “insider,” such as a relative or friend. This standard DOES NOT APPLY to regular expense payments such as car payments, house payments, rent, and utilities.

Maxing out balances on credit cards prior to filing for bankruptcy.

The card issuer has the right to review your purchasing habits and may request that any suspicious charges made before the filing NOT be discharged in the bankruptcy – meaning you still owe that balance.

Giving away, selling unreasonably low, or transferring assets to someone else before the bankruptcy filing.

The value of all assets must be considered during bankruptcy, even if you made arrangements for someone else to have that item. The trustee has the power to invalidate gifts, sales, or transfers if they appear to be motivated by keeping the item away from the proceedings.

Not listing pending lawsuits as potential assets.

If you have a pending lawsuit, it is especially important to consult with a skilled bankruptcy lawyer prior to filing for bankruptcy in Arizona. The bankruptcy trustee must be fully aware of any lawsuits at the time of filing so that the outcome of those suits can be considered as assets.

If any of these bankruptcy red flags might apply to your case, discuss the situation with a knowledgeable bankruptcy lawyer before you proceed.