When a business files a bankruptcy, under certain circumstances the bankruptcy trustee can assert a preference claim against certain creditors and take back from those creditors money previously paid to the creditor by the debtor. For example, if within 90 days of the filing of a Chapter 11 bankruptcy a payment is made on a past due invoice, in certain circumstances the trustee can assert that the creditor received a preference which is unfair to the other creditors and therefore, even though the money was owed, they must give it back to the debtor so the money can be redistributed to treat creditors equally. Trustee's would take advantage of this power by filing suit in order to try and get a settlement even though there may be valid defenses such as new value or contemporaneous exchange. In addition, if a company in, say Maple Shade NJ files a chapter 11 and the the debtor paid a company in Bozeman, Montana within 90 days before filing, the company in Bozeman could be forced to litigate in New Jersey. Under the new law, a trustee must do reasonable due diligence and consider defenses before they can file a suit. In addition, all lawsuits for less than $25,000.00 must be filed in the District where the defendant business is located. Both changes were badly needed.
1. Arrive early. This will give you a chance to review your case with your lawyer and listen to the trustee ask other people questions that he/she will also ask you.
Bankruptcy trustee suing college to recover tuition. What happens when you pay your child's college tuition and then file a chapter 7 bankruptcy within the next couple of years? Some bankruptcy trustees are suing the colleges to get the money back to pay the creditors in the bankruptcy. The theory is the parent did not have a legal obligation to pay the tuition and received no benefit so the payment was a fraudulent conveyance and therefore must be returned. Some courts have agreed with this argument and required the college to return the money. In that case the student now owes the unpaid tuition. Some courts more recently have determined that the college does not need to return the money because the parent is receiving a benefit such as making child independent so parent does not have to support. However, there is certainly a risk at this point when a bankruptcy is filed after tuition payments were made.
Thinking of filing a Chapter 13 bankruptcy? Know that all tax returns that you are required to file for the prior 4 years must be filed before the bankruptcy meeting of creditors which occurs approximately 30 days after filing. If you live in New Jersey, this means both federal tax returns and New Jersey state tax returns. Bankruptcy section 1308 states the requirements. If you were not required to file, for example, if you did not have enough income, then the requirement refers to the last years you were required to file. The trustee has limited discretion to extend the time.
What happens when a life estate is involved in a bankruptcy. First, a life estate is created in order to provide an individual with a right to remain in a property for the remainder of their life. For example in a will an individual can give his wife a life estate and give the remainder interest to his child. The child is the owner of the property except the mother has the right to remain in the property for the rest of her life. What happens if the child files for bankruptcy. In a bankruptcy a debtor filing bankruptcy can protect a certain amount of equity. If the equity exceeds the value of the exemption in the property then a trustee in a Chapter 7 bankruptcy could sell the property and use the money in excess of exemptions to pay creditors. Or the debtor can file a Chapter 13 and pay creditors an amount equal to the nonexempt equity. For example, if the home in question is worth $100,000 and there is a $25,000 mortgage against the property and the individual lives in, say, Voorhees New Jersey where the New Jersey exemption allows the individual to protect approximately $24,000 in equity in his home, is there $50,000 in equity in the property. The real question is would a willing buyer pay $100,000 for a property which would otherwise be worth $100,000 except for the fact that whoever buys the property has to allow the mother to remain in the property until she passes away. In the Chapter 13, rather than selling the property the debtor could pay creditors an amount equal to the value of the property. However, establishing the value can be problematic. Some trustees and courts will look at actuarial tables to determine how long the person with the life estate is expected to live. Often the value could be negotiated between the debtor's attorney and the trustee but certainly an experienced attorney would be needed to assist in a circumstance like this and one should be consulted to discuss the impact of any life estate issues in the bankruptcy.