9 times out of 10 transferring property prior to filing bankruptcy will create serious issues in your case that could threaten your discharge.
At a minimum, the bankruptcy trustee may have the right to “avoid” the transfer, undo it and claw the transferred property back into the bankruptcy estate.
Worse, certain types of transfers prior to filing could be deemed “fraudulent” and give rise to criminal sanctions.
This is especially true if the transfer was made with the intent to defraud creditors and/or if consideration received for the property was less than market value.
All property transfers within two years of filing your bankruptcy petition must be disclosed. Again, failure to do so could be a crime.
Now, not all transfers are fraudulent and not all transfers will hurt your case.
In fact, there are certain pre-filing transfers of property that could help you to achieve your fresh start.
Pre-filing bankruptcy planning is probably the single most important reason to hire a bankruptcy attorney and not go at it alone. I have previously talked about bankruptcy attorneys being a profitable investment and the pre-filing planning phase is where the dividends are paid.
Most pro se debtors will not have the case experience or knowledge of Federal and State laws to be able to properly engage in pre-filing planning.
The decisions made here could be the difference between a denied discharge and a true fresh start.
With case law to back it up, it is reasonable and feasible to transfer certain assets to gain the benefit of exemptions and protect assets from the grasp of creditors.
Our Strategic Transfer
I am in the process of helping a couple file chapter 7 bankruptcy. The husband owned a vehicle worth approximately $9,000. Here in New York, he would be entitled to a $4,000 exemption on that vehicle.
This would leave approximately $5,000 in unprotected equity in the vehicle.
Now, if the vehicle was titled jointly, as a couple, they would be entitled to an $8,000 vehicle exemption ($4,000 each) leaving virtually no available equity in the vehicle.
Shortly after consulting, the debtors and I came to a decision to “transfer” the vehicle. The transfer went Husband to Husband and Wife opening up the possibility of exempting almost the entire value of the vehicle.
I am in the process of filing this case so more to come.
There is much precedent here and courts have repeatedly said that engaging in pre-petition planning to gain the benefit of certain exemptions is permitted and without more, not an attempt to defraud creditors.
The debtor’s goal when filing bankruptcy is a fresh start. It is well within the written word and spirit of the bankruptcy law to do everything possible (short of fraud) to achieve that ultimate goal.
Image courtesy of Moyan_Brenn (Flickr).