It is a common belief that filing Bankruptcy will result in a person losing their home, vehicles, or other property. This belief (which is usually not true) can sometime be enough to persuade people to try to move property out of their name before filing bankruptcy. Something that is much less well known is the fact that the Bankruptcy Code has laws concerning property transfers made before filing a case, and the consequences can be serious.
Looking Back at Property Transfers
The basic rule is that the court can “look back” 2 to 3 years at any transfers of property a person has made. When filing Bankruptcy, one of the required forms specifically asks you to list any property transfers made within that time period. You are also required to list any property transfers made in the last 10 years to an insider (family member or business partner, for example) or to a trust fund.
If the Court determines that you transferred the property in an attempt to hide it from the Court or to keep it from being involved in the bankruptcy case, the Court has the power to reach back, undo the transfer, and potentially seize the property. If the Court doesn’t seize the property, it can still require you to pay the court an amount equal to the value of the property. The main consideration for the Court is whether or not you transferred the property for a fair market value. Suppose you own 3 acres of land you inherited from family. There is no mortgage on the land and it appraises for $7,000. You deed the property over to your spouse, wait a year, and then file bankruptcy. The Court will go after that property because you didn’t transfer it for a fair market value. You transferred it for $0 when you could have gotten $7,000 if you’d put it up for sale on the open market.
This rule applies to all types or property, not just real estate. Transferring the title on a vehicle or signing over a bank account to someone else would also count as property transfers the court could examine. The important thing to remember is to be upfront with your attorney about any kind of transfer. The Court must be informed about transfers and any attempt to conceal it can lead to the denial of your bankruptcy case or even perjury charges for submitting false statements to a Federal Court.
If you think bankruptcy may be an option for you, please come see us at one of our Bond & Botes affiliated offices before trying to sell or transfer any property. We offer free initial consultations with our experienced attorneys. We will discuss your situation and help you make the best decision possible to protect your property while also getting relief from creditors and debt collectors.