Bankruptcy A-Z: I is for Insider
December 28th, 2011 | 
Author: Bankruptcy A-Z: I is for Insider.
The bankruptcy code generally requires a debtor to treat all creditors of like type the same subject to the priorities created in the Code. Secured creditors get paid based on the property that secures the debt. Certain taxes, child and spousal support, and other specific types of debt are paid before anyone else in a specified order. Everyone else is a general unsecured creditor and only gets paid if there is money and even then, they get paid the same percentage.
Debtors are not allowed to treat anyone differently, especially not family or shareholders – INSIDERS. Doing so can have grave consequences for everyone involved.
I is for Insider.
An insider is any relative of the debtor or of a general partner of the debtor; a partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.
An insider is anyone who has a sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arms length with the debtor. If the debtor is an individual, then a relative of the debtor, a partnership in which the debtor is a general partner, a general partner of the debtor, and a corporation controlled by the debtor are all insiders.
If the debtor is a corporation, then a controlling person, a relative of a controlling person, a partnership in which the debtor is a general partner, and a general partner of the debtor are all insiders.
If the debtor is a partnership, then a general partner of or in the debtor, a relative of a general partner in the debtor, and a person in control are all insiders.
If the debtor is a municipality, then an elected official of the debtor is an insider.
In addition, affiliates of the debtor and managing agents are insiders.
IMPLICATIONS FOR INSIDERS
One type of debt that is not subject to the bankruptcy discharge is one for money, services or property obtained by the misrepresentation of fraud of a debtor or an insider of the debtor. This requirement puts you on the hook for family member’s actions when you cosign for their debts.
Another area where being an insider get different treatment is preference payments. As I said earlier, the bankruptcy code does not let you prefer one creditor over another. A trustee can avoid (or reverse) any transfer of any interest, including payments and gifts, for old debts made while you are insolvent if the payment was made within 90 days of filing for bankruptcy if that transfer gives that creditor more than he would be entitled to in a Chapter 7 case. The time limit is extended to one year for insiders.
The trustee can get the property back from you or from the insider. Imagine if Mom and Dad were sued by your bankruptcy trustee because you decided to pay them back for helping you out before you filed for bankruptcy. That wouldn’t be nice, would it?
Not only would they be out the money you paid them back, but so would you. AND you would still owe them the money. Oh, wait, that debt would be discharged. OUCH!!!
Don’t even think about giving property to friends and relatives, either. Giving away property to hide it from creditors can lead to a denial of discharge AND lawsuits to get the property back.
Remember the requirement of Good Faith? Take it seriously.
If you need protection from creditors, don’t do anything that will hurt you or those you care about. If you are in the metro Richmond area, or anywhere in central Virginia, contact bankruptcy and consumer lawyer Mitchell Goldstein at (804) 592-1674 or by email at mitch at mitchellpgoldstein dot com.
Other I posts:
I is for Involuntary Petition.
I is for Income or Income.
I is for IRS.
I is for In Forma Pauperis.
I is for Independent Contractor.
I is for Income Tax Refunds.
Photo Credit: TooFarNorth
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