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?
(You'll find additional answers to common questions about transferring property before filing for Chapters 7 and 13 at the end of the article.)
It depends. Valid reasons exist for transferring property before bankruptcy. However, transferring property from your name before filing for bankruptcy is often problematic. 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 the following:
Not all property transfers are inappropriate. Suppose you must pay necessary bills, such as your rent or a utility bill, or buy food or a warm coat. In that case, you can sell a car, boat, guitar, or any other property you own and use the money to pay bills.
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 overseeing your case.
Learn what to do with bank accounts, automatic payments, and utility deposits before bankruptcy.
If you intended to defraud your creditors by making the transfer, the court might deny your bankruptcy discharge altogether. You could also face other bankruptcy fraud consequences, such as criminal penalties.
The bankruptcy trustee could object to your bankruptcy discharge if you intentionally transferred property out of your name within one year of the bankruptcy filing to defraud, hinder, or delay your creditors.
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 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, the Chapter 7 trustee might be able to recover an asset you transferred out of your name if any of the following occurred:
A trustee in a Chapter 7 case would "liquidate" or sell the property and distribute the proceeds to your creditors.
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 be an option. However, it's not advisable unless you made the transfer to get money to pay for necessary goods.
Here's the problem.
No matter how long you delay filing, you could face criminal prosecution if you intend to commit bankruptcy fraud. If you've transferred property and are considering bankruptcy, seek advice from a bankruptcy lawyer.
Learn more about timing your bankruptcy filing.
Here are a few other answers to common questions about transferring property and selling assets before bankruptcy.
Can I sell my house before filing for Chapter 7 bankruptcy? Yes. However, you'll need a bankruptcy exemption to protect the home equity converted to cash due to the sale. Suppose you can't protect the funds using a homestead exemption (some homestead exemptions protect proceeds for six months or so), wildcard exemption, or cash exemption. In that case, you'd lose the money in Chapters 7 and 13—at least the amount covering your debt. However, you'd also pay a hefty trustee's fee, making it more economical to repay your debt outside of bankruptcy.
What happens if I transfer assets or sell property before Chapter 7 bankruptcy? It will depend on the circumstances. Nothing will happen if you use the proceeds for necessary purchases before filing for Chapter 7 or can protect any remaining funds with a bankruptcy exemption. You could face a problem if you don't disclose the transfer and can't exempt the property.
Can I transfer assets or sell property before Chapter 13 bankruptcy? As with Chapter 7, nothing will happen if you use the proceeds for necessary purchases before filing for Chapter 13 or can protect any remaining funds with a bankruptcy exemption. Before filing, you'll want to discuss any other circumstances with a bankruptcy attorney.