How bad can this get?

[cynatnite]

Just found out that a relative of mine filed for bankruptcy. She owned a business and sold it to another relative for a significantly reduced amount of money. She had a checking account opened up in the name of the family member and used it for funds. I'm not positive if it was for this business that she sold.

I was told that the court wants the bank statements of this checking account. An estimated $16,000 - $17,000 have gone through the account which has been spent. The person whose name is on the bank account refuses to turn over the bank statements.

My relative who filed for bankruptcy said that they might go after the other relative (she is living on social security) or even her for these funds that went through the checking account.

I don't know much about this sort of thing, but just on the face of it, this strikes me as not being legal. It sounded to me like my relative was trying to hide assets from the court. I'm not sure if I fully understand everything.

So, what does this sound like to you? How bad could this get?

[progressivebydesign]

1. Wow. I'm not a lawyer, but I've researched bankruptcy, and that doesn't sound right at all.

The Courts look at things like selling things off for less than value, and hiding money. The new laws are very very strict, and require a lot of checks and balances. I would hope your relative was working with an attorney before they made these moves. Hopefully it's just bad bookkeeping.

[Blue_In_AK]

2. It almost sounds like money-laundering.

I'd be a bit concerned about this if I were either party involved.

[cynatnite]

4. I was thinking it was a way of hiding assets and still making money off of them. n/t

[SoutherDem]

3. Big corporations can bankrupt and walk away clean and free

small business persons bankrupt and the courts go after every last penny.

The cards are stacked that is all there is to it.

[lunatica]

5. When I filed for bankruptcy it was legitimate for them to ask for all assets

You basically have to prove you can't pay your debtors with any assets you have. I had to give them months worth of bank activity statements and pay stubs and all the information on any 401Ks or any other assets I had.

The whole reasoning behind bankruptcy is that you can't pay your debts. Hell, the creditors can even take your car away from you so they can sell it just to get something back. They can sell all your possessions, although it doesn't happen much with small potatoes like me.

But my bankruptcy was a chapter 7.

[unblock]

6. sounds like there may have been some fraudulent conveyance going on.

i'm not a lawyer, but i deal with some corporate bankruptcy issues, and here's my understanding:

first and foremost, there's how to settle the money, then there's possible criminal charges, two almost entirely separate matters.

as far as the money goes, generally any assets (including money) that goes out from a business during the 90 days (possibly longer) prior to bankruptcy can get reviewed and declared to be "fraudulent conveyances" -- essentially assets being sold or transferred for less than a fair market value for any reason (whether trying to hide assets or not). these transactions can be declared null and void by the bankruptcy court and the assets "clawed back" to the bankrupt business, so that they can be properly used or sold in the interest of the creditors.

so, the court might decide that the sale of the business was a fraudulent conveyance and claw it back, then it can be sold or liquidated to pay off your relative's debts.

as for the checking account, it certainly sounds like there are further assets that were hidden. those can be clawed back as well. i can't say what the court might do in the absence of specific records if the account holder doesn't cooperate.

note that this is all just money, so there's no need for anyone to prove criminal intent or anything.


separately, if the relative commits perjury or fraud in the process of trying to hide assets, there might be criminal charges. i'm less familiar with this side of things, though i would guess that you need to be pretty overt before they would be able to prove and would bother filing a criminal charge.

i would strongly recommend that this relative consult a lawyer, and a good one at that.

[Warpy]

7. It can get very bad if the court thinks assets were hidden

to make bankruptcy easier. It can get especially bad when those hidden assets were milked for cash.

The bank statements will be subpoenaed.

I echo the advice to get a lawyer. Your relative will need one.