How a Bankruptcy “Claw Back” Works

Bankruptcy Attorney

There is a voluminous advice on what to do when filing for bankruptcy and leading up to filing a petition for protection from debt under bankruptcy. You may have heard that it is never a good idea to pay off any certain creditors directly before bankruptcy. One may be tempted to pay back a family member or friend in order to prevent having to list someone you know personally in your bankruptcy paperwork. The reason this is a recommendation is that the power of bankruptcy trustees under the US Bankruptcy Code to “claw back” certain payments made to creditors that can be viewed as preferential.

What is a Preferential Transfer?

To explain how a bankruptcy clawback works, one first must understand what a preferential treatment is and how they are qualified by the bankruptcy courts. In Ohio, bankruptcy courts deem anyone filing for bankruptcy to be insolvent, or having higher debts than assets, 90 days prior to the filing of your bankruptcy petition. Therefore, any payments or transfers of money or property worth more than $600 to be preferential treatment.

Whom you pay also matters. If the creditor is a friend, family member, or business partner, the time limit can roll back as far as 1 year before the beginning of your bankruptcy case.

Lastly, if a transfer of money or property takes place that appears to be a deliberate attempt to hide assets or transfer them to another party for less than market value in order to prevent the property from entering the bankruptcy attempt is deemed a fraudulent transfer.

The Claw Back Prevision

The clawback provision in Ohio allows that bankruptcy trustee to undo transactions, recover the money or property in question, and return it to its “rightful” place inside the bankruptcy estate. Your bankruptcy estate is essentially a collection of property to be converted to cash in order to pay back your creditors.

Get Help from a Dayton Bankruptcy Attorney

In some situations, you may continue making payments on assets that you wish to keep after your bankruptcy case is over, and there might be grounds for a clawback. Because of complications in an Ohio bankruptcy case, it is strongly advised that you obtain the counsel of a Dayton bankruptcy lawyer. A bankruptcy attorney can guide you through the entire process, let you know what to expect, and prevent you from making payments that will be clawed back by the bankruptcy trustee.

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