Beware of Transferring Property Before Filing Bankruptcy

As you might expect, anyone filing for Chapter 7 bankruptcy will have their recent income

, expenses, and debts scrutinized very heavily. One task that you will be asked to perform is to list all transfers of assets that you have acquired during the prior two-year period.

The reason that the court has you do this is to ensure that you are not attempting to hide assets to protect them from being seized and liquidated to pay back the creditors who you owe. After all, the courts want to be fair to the creditor as well as to the debtors. Some people, in an attempt to hold on to asset, will either give it to a family member or friend with the intention of having them give it back to you once you have filed for bankruptcy and had your debts discharged.

For instance, let's assume that you are the owner of a vacation house that you want to make sure that you retain once the bankruptcy proceedings are done. So, to make sure that happens, you transfer the deed to your Uncle Joe. The goal, in your mind, is to protect this asset from being sold to pay back your creditors. There is an implicit or explicit understanding between you and your uncle that once the bankruptcy proceedings are over with, that he will deed the property back to you.

In theory, this may seem like a good idea. In reality, however, from the viewpoint of the bankruptcy court, you have committed fraud. If the court finds this out, they will almost certainly rule this as a fraudulent transfer of asset. In this case, the likely outcome is that the asset will be seized anyway, liquidated for the creditors, and the bankruptcy dismissed. In other words, an all around loss for you.

A lot of people believe that they can hide their asset transfers by simply responding no when asked if they have transferred any property in the last two years. And, undoubtedly, some do get away with this. However, if you do this, you have committed perjury which not only puts you at risk for a jail term but, in addition, nullifies your bankruptcy request.

For those who possess significant assets that they really want to hold on to, the best way to treat a situation such as this is to gift the asset away and then simply wait for the two year period. This way no red flags will be set off when you are asked if you have transferred any assets within the past two years, because in truth you have not.

Unfortunately, if you are thinking about bankruptcy, it is unlikely that you can really afford to hold off filing for two years. In this case, your best option is to try to have the asset claimed as exempt from liquidation. Depending on the state that you are filing bankruptcy in and type of property under discussion, your request may be granted. If not, you might want to reconsider whether bankruptcy is your best option.

Beware of Transferring Property Before Filing Bankruptcy

By: David Hoyer

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