People who are considering bankruptcy sometimes think about transferring their property to another person with the intent of getting the property back after the bankruptcy is over. This is never a good idea. Transferring assets before bankruptcy may be considered a fraudulent act and can cause your case to get dismissed. If you don’t disclose the transfer, you may also be subject to federal penalties and criminal charges.

Certain types of transfers made before bankruptcy are looked at very closely. If you have transferred something that you think the trustee may look at it is a good idea to talk to an experienced bankruptcy lawyer before you file to avoid any unexpected consequences.

Transfers Made before Bankruptcy that may be Considered Fraudulent

A common example of a fraudulent transfer would be if you had a car worth $5,000 dollars that was paid off and you sold it to a friend for $100 within the prior two years of filing bankruptcy with the intent of someday taking back the car. Other common examples include taking your name off of a joint account or title to a vehicle prior to filing bankruptcy. These transfers may be considered fraudulent and trustee will look back in your financial history two years for any suspicious transfers.

Paying Off One Creditor over Another Before Filing Bankruptcy

If you have paid off a creditor that may be categorized as an “insider”, such as a family member or business partner, within a year of filing bankruptcy, the trustee may be able to recover that payment and redistribute it evenly to your creditors. The point is to treat all creditors equally. If you pay off one creditor before bankruptcy without paying off the others it is referred to as a “preferential payment.”

The Trustee is allowed to review your financial affairs over the last year in order to determine whether or not you made a preferential payment. The Trustee is allowed to look back two years to determine if a fraudulent transfer was made.

One exception to the rule is if you were solvent (had more assets than debts) when you made the transfer or repayment, you may be able to avoid a finding of a fraudulent transfer or preferential payment. The rules are to prohibit an insolvent person from giving away property of value or choosing who to pay back. If you were solvent when these events occurred, the rule is not triggered.

Consequences of Fraudulent or Preferential Transfers

If a trustee determines any transfers you made within two years of your bankruptcy to be fraudulent they can seize the property and sell it to pay off your creditors. If your case does not get dismissed, and the trustee seizes the property, in most cases the recovered property can not be protected by the use of California’s exemptions, meaning you would not receive any of the money form the asset being sold.

The consequences can be the same for preferential transfers. The trustee can take back the property and distribute proceeds to creditors. Not knowing this before filing bankruptcy can be quite troublesome, especially if the creditor you pay back is a family member.

How will the Trustee find out about Transfers made before Bankruptcy?

The trustee can find any deeds of trust regarding real property during their routine background check. Large cash withdrawals may be scrutinized as well.

When you go to your meeting of creditors you are asked questions under oath about your financial history. Trustees are very good at picking up on any hesitancy during this process. If they do pick up hesitancy, they can request a deposition like hearing for further questioning.

Talk to a Bankruptcy Lawyer

Planning is a vital part of the success of your bankruptcy. If you are considering bankruptcy and are worried about a transfer you made contact us today for a free case evaluation.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy under the bankruptcy code.