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Get things in writing and get receipts
By Mark Markus | November 26, 2008
If there’s one thing lawyers in general repeatedly see from their clients–in any field of law–it’s the lack of proof or evidence necessary to properly represent them or assist in solving their problems. This is as true for a contracts attorney whose client insists is the victim of a breach of an oral contract with someone, but has nothing in writing showing the terms of the contract, giving rise to the old adage “an oral contract isn’t worth the paper it’s printed on.”
In bankruptcy, the common errors I see in this regard include the following: paying rent with cash (often to family or friends), not having a written rental agreement, paying childcare expenses (baby sitter) with cash (and usually not paying the required “nanny taxes“), making charitable contributions without getting receipts, selling assets without keeping records of the transactions, giving or receiving loans without a promissory note, etc.
Many times I have clients tell me that they are paying rent to their parents for allowing them to live there, but there is no rental agreement. It could look to the bankruptcy court and creditors as though the debtor in question is merely gifting money to relatives to keep it out of the reach of creditors which is a big “no-no” (known as a “fraudulent transfer“).
Failure to have these items can result in all kinds of problems in your bankruptcy case, from as minor as having the expenses disallowed in your budget (thereby making it look like you have more disposable income than you really do) to having your entire discharge denied for failure to keep adequate books and records from which your financial situation can be be determined (11 U.S.C. 727(a)(3)).
It is very important to have and maintain records of your financial transactions. If necessary, these can sometimes be created after the fact to properly memorialize the intent of the parties, but it’s obviously better (and more persuasive evidence) if they are done at the time the events take place.
Loans are particularly important. Many times clients receive assistance from family members prior to filing a bankruptcy case. Most assume they are going to repay it when they can, but since it’s family, there is nothing in writing. Big mistake. If it is not a loan, then the money received is income–at least as far as current monthly income is calculated for the means test. This can result in a debtor who is otherwise eligible to file a Chapter 7 case, having to file a Chapter 13 or Chapter 11 repayment plan case.
So, the rule is: Always get things in writing and get receipts for payments you make. It can save you lots of problems inside and outside of bankruptcy.
Topics: Bankruptcy Law, General Bankruptcy Issues, chapter 13, chapter 7 | 1 Comment »
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February 5th, 2010 at 3:01 PM
[...] the importance of keeping records and receipts, as they are necessary in a bankruptcy case (see http://bklaw.com/bankruptcy-blog/2008/11/receipts-and-documentation/). This requirement was recently revisited by the 9th Circuit Court of Appeals in In re Caneva, 550 [...]