A major benefit and perk of using Chapter 7 bankruptcy is the forgiveness of debts it offers through a discharge. This discharge is good for all qualifying debts, and it can virtually leave a person debt-free if all their debts qualify for it. In return for the discharge, a trustee in a Chapter 7 case has the freedom and responsibility to seize a person's assets from them as a way of raising cash to pay off the creditors that the person owed money to. This is when something called a "look-back period" comes into play.

What is a look-back period?

In bankruptcy, a look-back period refers to the amount of time a trustee can look back into a person's life when the person files for bankruptcy. What this means is that the trustee has the freedom to look back into the person's life for the length of time that the look-back period entails (like, say, two years) to see what assets the person had during this time. There are states that may allow a trustee to look back even further than two years, but many states follow the two-year rule.

Why is this a bankruptcy law?

This particular bankruptcy law is a very important law to know, and states have it for important reasons. The main goal of this law is to prevent people from giving away things they own prior to filing for bankruptcy. A person would only want to give away things they own when planning to file for bankruptcy as a way of avoiding losing the items.

For example, if you own a piece of property that you inherited, you could lose this property if you file for Chapter 7. If you just give it away to a friend or relative before you file for bankruptcy, you might think this would be a good way to prevent losing it. After all, your friend could just give it back after your case is over. The problem with this is that it is fraud. You cannot give things away just to avoid losing them in a bankruptcy case.

What can happen if you commit fraud in this way?

Committing this type of fraud can lead to criminal charges against you, which may result in jail time, and you will also lose the ability to file your bankruptcy case. Using Chapter 7 is a privilege, and there are many rules you must follow when using it. If you have questions about it or want to find out how much it costs, talk to a chapter 7 bankruptcy attorney today.