Insider Of Individual Debtor
Bankruptcy may be the solution for hard to manage debts, but a simple mistake like paying another person can cause a great deal of problems. One of these problems is paying an insider. An individual contemplating of bankruptcy must know what this is and avoid potential problems that come with it.
What is an Insider?
Generally, an insider is an individual who has control over the debtor. A person can be considered as an insider depending on his relationship to the debtor and the type of debtor. A person related to an individual or corporate debtor according to the transactions they have in terms of debt payments or asset transfer.
What is an Insider of Individual Debtor?
An individual debtor is an individual filing for bankruptcy to settle debts. He can have different lists of potential insiders than a corporate debtor. An individual debtor’s insider can be any relative, up to great grandchildren, cousins, or those who became relative due to adoption processes.
Aside from close relatives, an individual debtor’s business partner or corporate employer or official can become insiders. These individuals can receive payments from the debtor for debts or receive asset transfers.
While having an insider shouldn’t be a problem, the transactions they received from a debtor can cause both parties an issue once the latter filed for bankruptcy.
The Advantage of Avoiding Having an Insider
Avoiding having any insider will save a debtor from preferential payment problems. Preferential payments refer to the act of preferring to pay the insider first rather than settling debts wit other entities. The preferential payment is done due to the debtor’s relationship to the insider. However, this is a wrong act according to bankruptcy court, especially when an individual is filing for bankruptcy. Not having an insider will ensure smooth bankruptcy filing process.
Not having any insider will also prevent possible asset transfers that can be considered as fraudulent. These transfers is giving an asset to an insider with the goal of cheating creditors. Since the asset will be given to another person, it won’t be counted to the asset amount to be collected and used for paying creditors. Both preferential payments and asset transfers can be problematic to bankruptcy filing and even prevent a debtor from being discharged.
Another advantage is preventing relationship problems in between the debtor and the insider. Once the bankruptcy court found out about the transfer, it gives the court due right to sue the insider to collect the paid money and transferred asset. This will cause rift and financial problem to the insider since they need to surrender the money and asset.
How to Avoid Having Insiders?
The best way of preventing the process of having any insiders is to avoid paying or transferring assets to any insider a year before filing for bankruptcy. In case any of these transactions are completed, an individual should stop any repayment then wait for another 12 months before filing for bankruptcy. This will keep relatives from being labeled as insiders.
Having an insider is often a mistake experienced by many individuals for bankruptcy filing. However, it can be prevented by stopping all transactions before bankruptcy filing and consulting an expert.