Transferring Your Assets When Filing Personal Bankruptcy – A Smart Move?
When you decide filing personal bankruptcy is the only option for you, there are many aspects to consider. You may be thinking about transferring some of your more valuable property to your spouse, family member, or friend. Is this really a good option though to ensure you qualify for filing personal bankruptcy?
Fraudulent Transfers and Filing Personal Bankruptcy
Unfortunately, simply transferring your property to another person to ensure you qualify for personal bankruptcy is known as a fraudulent transfer and is illegal. There are two types of fraudulent transfers, each with their own consequences.
Personal Bankruptcy Activity to Avoid
- Actual Fraud- Actual fraud occurs when you transfer your property to another person with then intention of hindering or defrauding the bankruptcy court and your creditors. Creditors who argue that actual fraud has occurred before you decided on filing personal bankruptcy must be able to prove that you intended to commit fraud. Because there are many individuals who commit actual fraud and attempt to hide their actual intentions for the fraud, the courts have set up rules and regulations for determining whether the individual intended to hinder the creditors in this way. Here are some ways the courts determine if fraud has occurred.
- If the sale or transfer of property occurred within one year prior to filing personal bankruptcy.
- If the majority of a debtor’s assets have been transferred prior to filing personal bankruptcy.
- The debtor has a relationship with the individual to whom the property was transferred to, such as a spouse, friend, or family member.
- The debtor admits the fraudulent transfer after the court threatens litigation.
- The debtor transferred the property to a new owner, and then the property was transferred back to the debtor.
If actual fraud is proven in a Chapter 7 bankruptcy case, the case will most likely be dismissed and the debtor will not be able to file for bankruptcy. In some cases, the bankruptcy is not dismissed, automatically, though. Instead, the trustee seizes the property and adds it to the debtor’s debts. Of course, because it was the intention of the debtor to exclude this property due to its value and effect on the bankruptcy case, the case may be dismissed anyway.
- Constructive Fraud- Constructive fraud is much different than actual fraud. This involves the transfer of one asset in exchange for another. This could involve the transfer or two properties or it could involve the sale of the debtor’s property during a time when the debtor could not pay his bills on the property. Instead of determining whether the transfer was made to hinder the bankruptcy case, the court will focus on whether the debtor received a fair trade on the property. They may ask for both pieces of property to be assessed. They may also question the debtor and the individual to whom the property was transferred to better understand the circumstances which led the debtor to exchange his property for another.
One of the most important factors in determining whether fraud has occurred when you are filing personal bankruptcy is the timing of the transfer or sale of your property. Most courts become suspicious of fraud if the transfer was made a year or less before filing personal bankruptcy. If you want to sell or exchange your property, and are considering filing personal bankruptcy, speak to your lawyer first to see what your options are.
