Why is the Bankruptcy Insider Status Important?
In arriving at their judgment, a bankruptcy court would take into account any instances of preferences (e.g., favoritism towards any specific creditor in debt repayment) or fraudulent transfers. The status of an insider implies that information from the said person or entity is needed in the bankruptcy case to: a) affirm what the debtor had stated regarding their transaction to be true. b) affirm that any recent asset transfers were at their fair market value and not fraudulent. c) Any inappropriately made transaction made by the debtor for the benefit of the insider. In which case, the lookback period is extended to one year from the standard 90 days. d) recover the amount within the transaction with the insider and distribute them to all creditors, in the case of favoritism. c) find evidence of any assets not disclosed in the bankruptcy case.
Who Qualifies as a Bankruptcy Insider?
Although the concept of insider is defined in 11 U.S.C. § 101(a)(31), there is no concrete rule of who or what entity can qualify as a bankruptcy insider. This is determined by the bankruptcy court on a case by case basis. However, there are some categories that tend to be common in the majority of bankruptcy cases. Below is their listing.
1) If the Debtor is an Individual
- Debtor’s relatives
- Any general partner
- Any partnership in which the debtor is a general partner
- any corporation in which the debtor is a director, officer, or person in control
2) If the Debtor is a Business Entity
- Directors, officers or persons in control of the entity
- Any general partner
- Partnerships in which the debtor is a general partner
- Relatives of a general partner, director, officer, or person in control of the debtor
3) If the Debtor is a Partnership
- General partners
- Relatives of a general partner in
- General partner of, or person in control of the debtor
- Persons in control of the debtor
In addition, common to all three include an affiliate of a debtor and managing agents.
Seek the Help of a Legal Attorney
Bankruptcy laws can be complicated and not always easy to understand. In filling a bankruptcy case, one can ill-afford room for making errors. This is why is always recommended to seek the aid of a legal attorney who can give better advise you on how to go through with your bankruptcy case. For a free consultation with an experienced lawyer, book an appointment with us online or call 512-764-3791.