Transferring Property to Family or Friends Before Bankruptcy Can Cause Big Problems
You may want to think twice about transferring property to family or friends before filing for bankruptcy. In some cases, transferring property before filing bankruptcy can result in a lawsuit objecting to your discharge.
That’s right, the bankruptcy trustee can sue you to recover the property you’ve transferred. If you think you may be filing bankruptcy in the near future then you should be careful before you sell or give any of your valuables to someone else. The fact is that in bankruptcy, there is law against any transfers that may prevent your creditors from receiving their “secured claims”. For that reason a debtor is prohibited from conveying all valuable assets to a family member, friend, or from selling personal property for a price far less than its fair market value.
Fraudulent Transfers Under the Bankruptcy Code
There are two types of fraudulent transfers inbankruptcy law, which include actual transfers and constructive transfers. What this means is that the court may find that you engaged in a “fraudulent” exchange even if you did not intentionally deprive your creditors from securing their debt. As a consequence the trustee may reposess the property or the value of the property as part of the bankruptcy estate. Protecting yourself from fraudulent transfers will allow a faster discharge.
Talk to a Bankruptcy Attorney
This law does not necessarily bar all types of transfers, but before you sell or give any of your assets away, including real property, make sure to consult a knowledgeable bankruptcy attorney to help you assess your available options. The laws on transfers can be quite complicated, so make sure to get some expert advice.