Commingling of Funds in Bankruptcy Cases

Commingling is a term that is used to describe the combining or mixing of different components or elements. The most common use of the word in bankruptcy cases actually involves a breach of trust when someone with a fiduciary duty mixes personal funds with that of the other person, company or entity. A fiduciary duty is a legal relationship of trust with regards to finances or financial matters. Commingling of funds can result in business assets being put at risk in personal bankruptcy cases as well as possibly risking individual property owned by a spouse that may have been sheltered had it not become community property.

Commingling in Business Bankruptcy Cases

Commingling of funds can occur in business settings as well as in private accounts. When bankruptcy cases involve businesses, companies or even non-profits there is always the possibility that one or more individuals have commingled funds in a breach of their financial responsibility to the organization. This can include attempting to hide assets of the business by moving them to personal accounts or actually taking cash from the company accounts and mixing them with personal accounts in an attempt to circumvent the funds or assets from becoming part of the bankruptcy.

Commingling in Personal Bankruptcy Cases

Most states in the United States are community property states. This means that the assets of the couple are considered to be commingled by law unless they fall under very specific categories. In most areas of the country inheritances and awards from lawsuits as well as property owned before the marriage or common-law relationship is deemed to be separate property or assets. If, however, funds were deposited to a joint account or a joint loan taken to provide improvements to property, some or all of that asset or money is considered to be commingled. Individuals with a spouse filing bankruptcy will have to prove that the property or funds were kept separate and were not commingled at any time to keep the asset out of the bankruptcy hearing.

Know the Law

Failing to report assets in a bankruptcy or attempting to commingle assets to protect them from bankruptcy can have serious repercussions both financially and legally. Seeking legal advice from a knowledgeable, experienced bankruptcy attorney is essential to avoid finding yourself in significant legal problems. This is true both for business as well as personal bankruptcy cases. Protecting assets while remaining within bankruptcy laws is a complex issue and one that an attorney is definitely required.