What is the Look-Back Period in Pennsylvania Bankruptcy?

Pennsylvania has a “look-back” period of four years, giving bankruptcy trustees ample time to undo or “clawback” a transaction considered a “fraudulent conveyance.” Having to defend a transaction that occurred four years preceding a bankruptcy filing can cause stress to anyone.

Here, Young Marr & Associates explain the inner workings of the look-back period in Pennsylvania. Contact us if you have questions about how to defend an old transaction and to learn about how these claims can interfere with your bankruptcy petition. If you are contemplating filing for bankruptcy, we can guide you through the process so you don’t have to worry about your past transactions.

Initiating the Bankruptcy Look-Back Period

A bankruptcy trustee is assigned to every petition. Under 12 Pa. Cons. Stat. § 5109, Pennsylvania law provides a four-year limit to file a lawsuit known as a “voidable transfer.” A voidable transfer is generally a questionable transaction, imbued with some type of deceit linked to a specific abuse of the U.S. Bankruptcy Code. State laws are applicable in federal bankruptcy cases with respect to voidable transfers or transactions.

A bankruptcy trustee initiates a look-back period claim as a representative of the bankruptcy estate where creditors also have rights. Most people don’t realize that the trustee can’t just reclaim those transactions without filing an official legal complaint in a civil court and proving the case. This complaint must state specific facts establishing that the debtor’s actions essentially amounted to fraud.

Most lawyers in Pennsylvania will agree that fraud is easy to plead but hard to prove. There is a specific provision pursuant to 11 U.S.C. § 544(b) providing that the transaction in question must meet the higher standard of a “fraudulent conveyance.” A fraud claim is not easily proven, and it carries a greater evidentiary requirement that other civil claims.

Moreover, for purposes of bankruptcy law, fraudulent conveyances are essentially transactions made without receiving a “reasonably equivalent value,” which means you didn’t receive fair payment for the transfer. Also, if the debtor was insolvent or rendered insolvent as a result of the transaction, this meets the standard of a fraudulent conveyance. Insolvency means generally unable to pay creditors, the debts effectively exceeding the income. You should contact an attorney to ask more questions about how it applies to your circumstances.

What Types of Transactions Will the Court Reverse in a Pennsylvania Bankruptcy?

A trustee is essentially looking for a transaction intended to hide an asset that could be sold and liquidated. The most common examples are transfers or sales to family members or close associates. The transfers can include the transfer of deeds to homes and other real estate as well as interest in assets such as stocks and shares of other valuable investments without receiving proper compensation. Any transaction preceding the bankruptcy for less than market value can be challenged in a bankruptcy process.

Another example is when someone transfers a valuable asset to one creditor and files for bankruptcy later, leaving other creditors without the possibility of payment. The goal of the trustee in looking back to reach out to those assets is to liquidate it in order to pay other creditors. This can happen in a wide variety of circumstances that don’t have to relate to fraudulent intent. With the assistance of an experienced attorney, your actions don’t have to undergo unnecessary scrutiny.

Why Do I Need to Know About the Look-Back Period?

Unfortunately, many people think that transferring an asset serves to protect or shield assets from creditors. This misconception can cause many troubles for someone who files for bankruptcy, because the U.S. Bankruptcy Code, particularly under Chapter 13, gives debtors the opportunity to protect their principal residence as well as a vacation home and other assets. Furthermore, your retirement accounts such as your 401k and other qualified accounts are protected up to $1.3 million.

You should schedule a consultation with one of our attorneys today if you are concerned about the level of protection for your property during bankruptcy. Call us at (215) 701-6519 where one of our attorneys can discuss how you can keep your home, car, and other assets if you file for bankruptcy protection.

The bankruptcy trustee has a duty to allocate the amounts discharged and liquidate the assets distributed to pay creditors. When the assets fall short, the trustee can look at multiple types of transactions and consider whether some are objectionable, such as “non-necessaries.” An attorney can explain what types of expenditures are considered non-necessaries. Trustees can look with suspicion at certain transactions and your attorney can explain your actions in the best light possible.

Sometimes creditors report concerns over illegitimate expenses and bad faith actions toward their rights prior to and during a bankruptcy proceeding. If you are concerned that this can happen to you or someone you know, it’s vital to seek experienced legal representation immediately. As part of your bankruptcy filing, you provide a significant amount of disclosures that can avert misconceptions about your transactions and expenditures.

Additional Protections to Creditors in Pennsylvania

Under the Pennsylvania Uniform Fraudulent Transfers Act (PUFTA), bankruptcy trustees have a wide ability to cancel transfers that are considered “constructively” fraudulent in that they were made with the intent to “hinder, delay or defraud” a creditor.

This is very common in cases when a property is changed into someone else’s name while retaining the enjoyment of the property. This is considered a sham transfer. Another common example is when a debtor opens an account with a spouse as a tenant by the entirety, and such an account would constitute a fraudulent transfer under PUFTA.

Call Our Trusted Bankruptcy Attorneys Serving Pennsylvania

Rash or ill-informed actions can cause serious problems down the road if you decide to file for bankruptcy. The skilled bankruptcy lawyers at Young Marr & Associates can help you avoid any of the pitfalls common to these types of transactions. For more information or to schedule a consultation, call our offices today at (215) 701-6519 or visit us online.

Have You:

Been paying credit card balances that seem to never go down?

Lost your job and are now having trouble keeping up?

Attempted to work out a payment arrangement to no avail?

Been notified of a mortgage foreclosure action?

Been denied for a mortgage or other line of credit?

If the answer to any of these questions is “yes” then bankruptcy may be an option that you should consider.

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