A chapter 7 debtor (as opposed to a trustee) may bring such actions for his or her own benefit (as opposed to for the benefit of the debtor's estate) in limited circumstances. To bring the avoidance action the debtor must establish standing under section 522(h) of the Bankruptcy Code. Standing only arises if the debtor establishes:
Debtor Avoidance Actions Standing Requirements:
(1) the transfer to be avoided cannot have been a voluntary transfer of property by the debtor;
(2) the debtor cannot have concealed the property;
(3) the trustee cannot have attempted to avoid the transfer;
(4) the debtor must exercise an avoidance power usually used by the trustee that is listed within section 522(h); and
(5) the transferred property must be of a kind that the debtor would have been able to exempt from the estate if the trustee (as opposed to the debtor) had avoided the transfer pursuant to one of the statutory provisions in section 522(g).
In practice, commencing an adversary proceeding is not necessary. Oftentimes a demand letter from debtor's counsel is enough to prompt intuitional creditors to voluntarily return money that can be avoided.
To schedule a free consultation with a bankruptcy attorney today about New Jersey Chapter 7 Bankruptcy, contact us online or call 973-870-0434.
