Bank finance articles and tips

Despite what some bankruptcy debtors may assume, avoidance in bankruptcy is not when you run away from paying your bills. Avoidance is the power of the bankruptcy trustee to eliminate liens and reverse asset transfers, specifically those that were created before bankruptcy filing. In some cases "avoidance" is a good thing for bankruptcy debtors; but in others it may cause problems. Let's take a look at a few of the facts:

Pre-bankruptcy Debt Payments

In their efforts to correct debt issues before filing bankruptcy, some debtors pay off a few select creditors. For example, a reasonable debtor might decide that they really need to have a particular credit card, so they pay if off while allowing another credit card fall into default. After filing bankruptcy, the trustee will probably "avoid" the payment sent to the preferred credit card company, which basically means that the trustee will ask that the money is returned to the bankruptcy estate. Now on the surface this may seem like a good thing, the debtor not only gets to discharge their credit card debt; but they get their money back too. Well, not exactly. The key words in this statement are "bankruptcy estate." The money will return to the pool of assets used by the bankruptcy trustee to pay creditors and the debtors won't see a dime of it. This is why it's important that a debtor work closely with their bankruptcy attorney to plan how they can legally (and strategically) spend cash before filing bankruptcy.

Bank Levies and Wage Garnishments

When a debtor waits until after a creditor wins the right to levy their bank account or garnish their wages to file bankruptcy, they may experience an "overlap" problem. Basically, the creditor may garnish their wages or levy their accounts in between the time that the debtor files bankruptcy and the creditor receives notice of that bankruptcy. If this happens, the bankruptcy trustee has the power to "avoid" the garnishment and levy and return the cash to the debtor. This is good news for a bankruptcy debtor who may be dependent on seized cash to pay their rent or other essential expenses. However, this will not happen automatically. If a creditor seizes a debtor's assets after they file bankruptcy, they debtor needs to notify their attorney so they can petition the bankruptcy court to avoid the transfer of assets.

Secondary Mortgage

Debtors struggling to pay an upside down mortgage may be happy to know that a bankruptcy trustee has the power to avoid the lien of a secondary mortgage which is not secured by the property. For example, if a house worth $150,000 has two mortgages, $150,000 and $80,000 respectively, then the bankruptcy trustee can declare the second mortgage of $80,000 unsecured and avoid any lien the mortgager has on the debtor's property.

Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.

By Reed Allmand
Article Source: http://EzineArticles.com/?expert=Reed_Allmand