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9th Circuit court ruling may set the tone for bankruptcies

South Carolinians who want to file for bankruptcy may be interested in a ruling handed down by the 9th Circuit court in the fall of 2016. The matter involved a dentist who filed for bankruptcy after one of his patients secured a malpractice judgment against him. Because the dentist transferred some of his real estate assets before his successful bankruptcy filing, the patient sought to bar him from obtaining a discharge on the grounds that he made the transfer in order to cheat his creditors out of compensation.

According to the Bankruptcy Code, transfers like the one made by the dentist need to be performed more than one year prior to a bankruptcy filing. Bankruptcy seekers whose transfers fall short of this time requirement may be denied protection.

The court was asked to consider whether the one-year time period could be counted as a statute of limitations for pursuing legal remedies. If it was, then it may have been subject to equitable tolling doctrines that would have allowed the patient's adversary denial of the bankruptcy to go forward in good faith. Because the 9th Circuit decided that the period constituted a constraint on debtors and not a statute of limitations for creditors, however, the dentist was able to retain his bankruptcy discharge rights.

Filing for bankruptcy can be complex, and even creditors may lack a thorough understanding of the rules. As a result, they may seek to prevent debtors from exercising their rights and protections under the law by pursuing formal injunctions and adversary proceedings. Such actions can complicate the filing process and potentially increase debtors' court costs. Individuals who plan on filing for Chapter 7 may benefit from seeking clarification from an attorney on how to protect themselves against groundless legal actions and properly document their financial affairs in advance.

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