I put my car in my brother's name so the bankruptcy trustee couldn't take it. What happens if the trustee finds out?
If you give away any property before you file bankruptcy, you must
disclose that you did so. The bankruptcy trustee can take action to
recover the property you transferred if the transfer occurred with in
two years before you filed your bankruptcy. If you transferred title in a
vehicle to a relative for the purpose of keeping the vehicle out of the
bankruptcy estate and away from the trustee, the trustee will file an
action for a fraudulent transfer to recover the vehicle.
When you file bankruptcy, one of the many documents you must submit with the filing is the Statement of Financial Affairs (SOFA).
The SOFA requires you to provide information about your financial
history, including past bank accounts, businesses you have owned,
property you hold for another and property you have sold or transferred.
If you sold or transferred your car to another person prior to filing
the bankruptcy, you must disclose it on your SOFA.
every person who files bankruptcy must attend a meeting of creditors,
where the trustee will ask questions about your property and finances.
The trustee will ask you if you have transferred or sold any property
within the past few years. (Learn more about the meeting of creditors.)
you intentionally omit the information from your SOFA or if you are
untruthful at the meeting of creditors, you can lose your bankruptcy
discharge. Worse still, you sign your bankruptcy paperwork and testify
at the meeting of creditors under penalty of perjury, and you risk fines
and criminal action if you lie. (For more on the consequences if you
hide property or lie, see Hiding Assets & Property in Bankruptcy.)
of the trustee's many powers is the ability to avoid (cancel) certain
transfers and recover the transferred property. This means the trustee
can legally undo the transfer and get the car back from your brother. To
do so, the trustee will file a lawsuit within your bankruptcy case
against your brother to recover the car, alleging that the transfer was
fraudulent. Your brother will have to answer the complaint and engage in
a lawsuit; if he fails to answer, the court will enter a default, and
the trustee will obtain a judgment.
There are two grounds for a fraudulent transfer action: actual fraud and constructive fraud.
Actual fraud. Actual
fraud is found where the debtor transfers property with actual intent
to hinder, delay or defraud creditors -- which is the case if you
transferred your car into your brother's name in order to hide it from
Constructive fraud. Even if the
trustee cannot prove that you had actual intent to defraud, the trustee
can still sue under a theory of constructive fraud if:
This means that even if you weren't trying to hide assets, your brother still might have to give the car back.
brother's options in either case (actual or constructive fraud) are to
(1) give the car back, (2) try to reach a settlement with the trustee
whereby he keeps the car and pays the trustee some money, or (3) fight
the trustee lawsuit.
To learn about how the trustee can bring an action to get property back into the estate, see Adversary Proceedings in Bankruptcy.
by: Rebecca K. McDowell, Contributing Author