Bankruptcy is one of those situations that most people don’t think too much about, unless it affects them directly. The consequences are quite serious, and even after the required time has passed and the bankruptcy ends, a permanent record of the situation remains on the National Personal Insolvency Index. This is a database that can be accessed by anyone who will pay the fee, so the consequences of becoming bankrupt can follow a person for life.
Duties of Bankruptcy Trustees Set Down in Legislation
When a person or business becomes bankrupt, a trustee is appointed to administer the bankruptcy. The trustee has specific duties that must be performed by legislation and trustees must adhere to certain standards while they are administering the bankrupt estate. Among other duties, the trustee is required to sell the assets of a bankrupt, recover any income earned above a certain limit and possibly act to recover property the bankrupt may have transferred to someone else prior to the bankruptcy being declared.
There are many myths and misconceptions in the general community about the apparent ease with which bankrupts have transferred substantial assets to family members. The belief among many is that the bankrupt, knowing what is coming, can transfer property and other assets to keep them from being sold, and transfer them back into their name once the bankruptcy has ended. However, this is not the action that reputable business accountants would recommend to a client in these circumstances.
Section 121 of the Bankruptcy Act provides that a transfer by someone who is later made bankrupt can, in some circumstances, be set aside. Several cases that have been decided in court have debunked some of those myths by finding that the bankrupt had deliberately set out to place the assets out of the reach of creditors. Where this has happened, the transfers were ordered to be void.
Dodging Section 121 not a Sound Asset Protection Strategy
Most of these circumstances occurred because the people involved mistakenly believed that taking this action was a legitimate asset protection strategy. This is why it is very important for anyone wishing to protect their hard-earned wealth to get correct and informed advice. Only professionals experienced in assisting clients to safeguard their assets and investments understand fully the implications of some asset protection strategies.
The courts have consistently ruled that in circumstances where it is evident that assets have been transferred to elude creditors, those assets will be made available to the bankruptcy trustee to pay debts. Trying to circumvent the provisions of Section 121 of the Bankruptcy Act is not a strategy that any responsible financial management advisor would recommend to a client information.
