As for the property in this case it was a sale…after her embezzeling
husband abandons marital home she sells a Mercedez that he gifted her and
gets 40K out of it and later sells home and pockets 17K. I explained to her
that trustee may very well demand to see proof that those proceeds are in
fact correct and proof that the money has since been spent on ordinary
expenses. She claims, divorce attorney fees, bail bondsman fees, credit
cards and unemployment caused her to go through all this money. I told her
she may need to prove it. The issue is not so much how the money was spent — this will appear
on the bank statements — as whether the transfer was fraudulent or
preferential. If it was an arms-length transaction and the
transactional documents are available for the trustee to review, no
worries. there are two related
questions. One is whether the transaction will be unwound (due to
voidable preference/fraudulent transfer). Two, if the transaction is
not unwound, whether such funds should still be found in the bk estate
or not.
The trustee would ask where the money went – they are looking out for
people who said they spent the money, say on nice wine that went down
the gullet, who didn’t, and instead have the money illegally socked
away for use after the discharge.
Remember, all nonexempt assets are part of the bk estate. If the
transaction is not unwound, then the money should be in the estate
unless spent. If it is enough noney and/or the influx of money was
close enough in time to filinf then the question of what happened to
the money will be raised and will need to be addressed. The trustee can recovery preferential and fraudulent transfers that
take place prior to bankruptcy and can bring an action to prevent the
discharge under 11 USC 727 for concealing assets or failing to keep
sufficient records, both of which are grounds for denying the
discharge. The case can also be dismissed for abuse under 11 USC 707
– that’s the only way that the debtor’s prepetition activity could
enter into it.
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