I cannot tell you the number of times I have heard prospective clients tell me something like this:
“I have been wanting to file bankruptcy for several months, but I wanted to put my house into my relative’s name first.”When I hear that, I usually cringe. Transferring property in contemplation of bankruptcy is a big no-no for two reasons: (1) the transfer and can be undone; and (2) the discharge can be denied.
Under Section 544, a trustee can avoid a transfer of property by the debtor. In other words, and using the above example, the trustee could get the house back from the relative.
Perhaps even more problematic for a debtor: tThe discharge can be denied. Section 727 provides for a denial of discharge if “the debtor, with intent to hinder, delay or defraud a creditor or an officer of the estate (such as the trustee) has transferred, removed, destroyed, mutilated, or concealed …property of the debtor, within one year before the date of the filing of the petition; or…after the date of the filing of the petition.”
It’s been my experience that debtors transfer property without first speaking to an attorney. While the motives for transferring propety may be questionable, the decision to transfer is usually fueled by a fear of losing the property in a bankruptcy proceeding. However, no one can really determine whether an asset would not be exempt from the bankruptcy estate unless all of the facts are analyzed by an attorney. Without an opinion from an attorney, it is impossible to determine whether the fear is actually legitimate.
Yet even if the fear is legitimate, the biggest reason – if not the only reason – why consumer debtors seek bankruptcy protection is the discharge. Going into the process, losing property and losing the discharge makes no sense. Also, a debtor who transfers property is likely going to find themselves pulled into an Adversary Proceeding, which only increases the costs and fees associated with filing bankruptcy. If you’re thinking of transferring property: speak to a bankruptcy lawyer first.
You might also want to read:
Unauthorized Post Petition Transfer Leads to Denial of Discharge
Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.
