I transferred property out of my name, and now I need to file for bankruptcy. But is it a good idea? Should I file for bankruptcy now or would it be better to wait?
It depends. Valid reasons exist for transferring property before bankruptcy. However, when you transfer property out of your name before filing for bankruptcy, the bankruptcy trustee might be able to avoid the transfer and get the property back for the benefit of your creditors.
Whether the trustee will be able to reverse the property transfer will largely depend on:
Not all property transfers are inappropriate. If you need to pay necessary bills, such as your rent or a utility bill, or you need to buy food or a warm coat, you certainly can sell a car, boat, guitar, or any other property you own to do so.
If you plan to file for bankruptcy soon after that, you can usually avoid a problem by:
Plan to disclose the property transfer when filling out your bankruptcy paperwork. You'll also want to take your records to the 341 meeting of creditors so that you're prepared to answer any questions posed by the bankruptcy trustee appointed to oversee your case.
If you intended to defraud your creditors by making the transfer, the court might deny your bankruptcy discharge altogether (and you might find yourself subject to other bankruptcy fraud consequences, such as criminal penalties).
If the bankruptcy trustee (the official appointed to oversee your case) discovers that you transferred property out of your name within one year of the 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 will happen if the bankruptcy trustee suspects fraud.)
Even if the bankruptcy trustee can't object to your discharge on the above grounds, the trustee might be able to recover an asset you transferred out of your name if:
Even if you transferred the property more than one year before your bankruptcy, under the above circumstances, a trustee in a Chapter 7 case could still get the property back, liquidate it (if it's not property that you can protect under your state's exemption statutes), 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 usually won't seek to avoid the transfer.
If you made a transfer that might put you in danger of losing your discharge or allowing the trustee to get the property back, delaying your bankruptcy might protect you from these negative consequences. However, it's really not advisable unless the transfer was needed to pay for necessary goods.
Remember that no matter how long you delay filing, if you intended to commit bankruptcy fraud, you might run afoul of a serious offense, land in a lot of trouble, and find yourself facing criminal prosecution. If you've transferred property and are considering filing for bankruptcy, seek advice from a bankruptcy lawyer.
For more articles on when to file your bankruptcy petition, see Timing Your Bankruptcy Filing.