People often ask about “lookback” periods in bankruptcy.
What are they?
While the word lookback is not mentioned anywhere in the Bankruptcy Code, Bankruptcy has several different lookback periods which people often refer to regarding a case.
I will discuss them below.
The Six (6) Month Bankruptcy Lookback
The 6-month lookback refers to calculation of budget eligibility for people filing bankruptcy that have “primarily consumer debts”. Consumer debts are those used primarily for household/personal things. For example, credit cards used for groceries, clothing and such; mortgages on your residence; medical debt, and so forth.
Those filing Chapter 7 bankruptcy cases with primarily consumer debt must “pass” the Means Test.
The Means Test starts by looking at the GROSS income received from all sources in the six (6) calendar months prior to the case filing.
It compares that income to the census bureau’s median income for the area where your case is filed given your household size. If you are below the median income for that six month period, you move to the second test. This next test is just a basic current income and expense analysis (do you have any money left over after your ordinary living expenses are paid?).
If you are above the median income, then you go through a more extensive means test determination which is complicated. It uses certain IRS allowed expense standards and allows deductions for various secured debt payments. In the end you come up with a number, above which you have too much income to do a Chapter 7, and below which you are “OK” to file Chapter 7.
Chapter 13 and Chapter 11 cases for individuals use the same test, but it is not an eligibility factor. It more determines the length of your repayment period and to a degree the amount you will need to repay to your creditor.
An experienced bankruptcy lawyer will evaluate your situation to determine how the 6-month lookback period will affect your case. Our office does the means test analysis and determinations as part of our initial consultations (assuming enough information is provided).
Preferential Transfer Lookback Period in Bankruptcy
Bankruptcy law provides the Trustee with the power to recover certain payments made prior to filing a case.
Among these are any payments made to creditors (those to whom you owe money) within 90 days prior to filing a bankruptcy.
This is a 90 day lookback period.
The reason for this is equitable. Bankruptcy law attempts to treat everyone fairly. Therefore, it does not “like” when you prefer one creditor over another.
So when you repay someone within 90 days before filing a bankruptcy, the Trustee can sue that recipient to recover the money.
Now there are several exceptions and defenses to a preference action. For example, it does not typically apply to secured debts (payments to your mortgage lender, or on your vehicle). It doesn’t apply to contemporaneous transactions, such as buying groceries. And a few others.
The lookback period for Insiders (i.e. family members or business affiliates) is one year for preferential repayments.
It’s a complicated area of law, so contact an experienced bankruptcy attorney to discuss if this would be an issue in your case.
Fraudulent and Other Transfers of Property Prior To Bankruptcy
There is another lookback period which Trustees have to pursue other transfers of assets.
These transfers are basically any that are made where the debtor (party filing bankruptcy) made the transfer:
- With the intent to hinder, delay, or defraud their creditors, or
- Did not receive “reasonably equivalent value” for the transfer
So, for example, if you sold your house to someone for less than its fair market value, the bankruptcy trustee can sue the recipient for the difference in what should have been received.
Or, if you just give money to someone without getting anything in return, that is recoverable.
The lookback period for these types of events is two (2) years prior to the bankruptcy filing.
However, most states have similar statutes which allow recovery of fraudulent transfers. California does and it has a 4 year lookback period. And an 8 year general fraud statute of limitations. So the Trustee in a Chapter 7 case can use the state laws also to recover.
And in cases where the Internal Revenue Service is involved, the lookback period can be up to ten (10) years.
So be sure to discuss all transfers made in these periods with an experienced bankruptcy attorney before filing a case.
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