I transferred property out of my name. Should I wait to file for bankruptcy?

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Question:

I transferred property out of my name, and now I am wondering if now is a good time to file. Should I wait to file bankruptcy?

Answer:

If you transferred any property out of your name prior to filing for bankruptcy, the bankruptcy trustee may be able to avoid the transfer and get the property back for the benefit of your creditors. If you intended to defraud your creditors by making the transfer, the court may deny your bankruptcy discharge altogether.

What happens when you transfer property prior to filing for bankruptcy depend on:

  • whether you intended to commit fraud,
  • whether you sold or transferred the property for less than its value, and
  • when the transfer occurred.

Intentionally Committing Fraud Can Cost You Your Discharge

If the bankruptcy trustee discovers that you transferred property out of your name within one year of your bankruptcy filing with the intention of defrauding, hindering, or delaying your creditors, he or she has grounds to object to your bankruptcy discharge. The trustee also has grounds to object if you destroyed, harmed, or hid your assets. As a result, it is never a good idea to transfer or conceal property in an attempt to defraud your creditors before filing for bankruptcy.

(Learn more about what the bankruptcy trustee does in your case.)

The Bankruptcy Trustee Has the Power to Avoid Certain Transfers

Even if the bankruptcy trustee can’t object to your discharge on the above grounds, he or she may be able to recover an asset you transferred out of your name if:

  • the transfer was within two years of your bankruptcy filing or within the time allowed for setting aside a fraudulent transfer under state law, whichever is longer, and
  • you transferred the property with intent to defraud, delay, hinder your creditors (actual fraud), or
  • you transferred the property for less than what it was worth while you were insolvent or intended to incur more debt than you are able to pay back (constructive fraud).

This means that even if you transferred the property more than one year prior to your bankruptcy, under the above circumstances, a Chapter 7 trustee could still get the property back, liquidate it (if it is not exempt), and distribute the proceeds to your creditors. However, keep in mind that if you transferred an asset with no equity or if you can exempt it in your bankruptcy, the trustee will normally not seek to avoid the transfer.

Delaying Your Bankruptcy Can Protect Your Transfer

If you made a transfer that may put you in danger of losing your discharge or allowing the trustee to get the property back, consider delaying your bankruptcy long enough to protect yourself from these negative consequences. However, remember that no matter how long you intend to delay filing, committing bankruptcy fraud is a serious offense that can land you in a lot of trouble and may result in criminal prosecution.

For more articles on when to file your bankruptcy petition, see Timing Your Bankruptcy Filing.

by: , Attorney

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