The length of the lookback period varies depending on the type of transfer being examined. The preferential transfer period is 90 days prior to the bankruptcy filing date for ordinary creditors and one year prior for insiders, such as family members or business partners. The fraudulent transfer period, on the other hand, can extend back four years and possibly longer if the IRS has debts going back many years.
The lookback period refers to the period of time before the bankruptcy filing date that the court examines to determine whether any assets or transactions can be deemed fraudulent or preferential and is discussed in more detail herein.
The lookback period is divided into two types: the preferential transfer period and the fraudulent transfer period. The preferential transfer period is the period during which the person filing bankruptcy (commonly referred to as the debtor) has made payments to certain creditors that are considered “preferential” over other creditors. The fraudulent transfer period, on the other hand, is the period during which the debtor has transferred assets to another party with the intention of hiding those assets from creditors.
During the lookback period, the bankruptcy system can look at the debtor’s financial transactions to determine if any transfers or payments were made that could be considered fraudulent or preferential. In the case of preferential transfers, the court will look for transactions where the debtor made payments to certain creditors, such as friends or family members, while neglecting to make similar payments to other creditors. If the court determines that a preferential transfer was made, it may require the creditor who received the payment to return the funds for distribution among all creditors.
In the case of fraudulent transfers, the court will examine transactions in which the debtor transferred assets to another party with the intention of hiding those assets from creditors. This can include transferring assets to a family member or friend, selling assets for less than their value, or transferring assets to certain types of trusts. Note: most trusts are revocable living trusts, which do not cause problems. If the bankruptcy system determines that a fraudulent transfer was made, it may require the recipient of the assets to return them to the bankruptcy estate for distribution among all creditors.
It is important for debtors to be aware of the lookback period when considering bankruptcy. If a debtor has made any preferential or fraudulent transfers during the lookback period, those transactions will be reviewed by the bankruptcy system and may result in a lawsuit against the people involved. Scary! The time to discuss these issues is before filing for bankruptcy, and a lawyer can help avoid trouble in court. Some people assume they can avoid problems by “leaving that out” of the papers. The bankruptcy documents require disclosure of many transactions, and transfers involving real estate are easily seen in the county records, and transfers of vehicles are maintained by the Department of Motor Vehicles, so there are several reasons to carefully answer all questions in the bankruptcy forms.
In conclusion, the lookback period is a critical component of the bankruptcy process that ensures all creditors are treated fairly. By examining the debtor’s financial transactions during the lookback period, the court can identify any preferential or fraudulent transfers and ensure that all creditors receive a fair share of the debtor’s assets. Ultimately, the goal of the bankruptcy process is to provide a fresh start for the debtor while also ensuring that creditors are treated fairly.
At the Law Office of Michael Primus, we have helped hundreds of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in northern California and have debt problems, contact us for a free consultation. Offices in Walnut Creek, Antioch and Hercules.
Sources
11 U.S.C. 547
11 U.S.C. 548