You want to avoid transferring property before you file for bankruptcy, if possible. When you file for bankruptcy, the Court appoints a Trustee to administer your case. Trustees investigate whether you have made transfers of property prior to filing for bankruptcy. The “look back” period is six years for Chapter 7 bankruptcies and two years for Chapter 13 bankruptcies. For more information on Chapter 7 and Chapter 13 see my article entitled, “The Difference Between Chapter 7 and Chapter 13 Bankruptcy, and Which Chapter is Right For You.”
If the transfer occurred greater than six years prior to filing a Chapter 7 bankruptcy or greater than two years prior to filing a Chapter 13 bankruptcy, the transfer will typically not raise any red flags. But if the transfer occurred less than six years prior to filing Chapter 7 bankruptcy or less than two years prior to filing a Chapter 13 bankruptcy, that transfer may be regarded by the Trustee as a “fraudulent transfer” if he or she believes one of two things occurred: 1) You made such transfer with actual intent to hinder, delay, or defraud; or 2) You received less than market value for the property.
Example 1: Mary owns a house jointly with her mother. Mary thinks she needs to file for bankruptcy but it afraid that she would lose the house if she is on the deed when she files for bankruptcy. Mary uses a quit-claim deed to transfer the house entirely into her mother’s name, and two years later files for a Chapter 7 bankruptcy. This is an example of making a transfer with intent to hinder or defraud, since Mary tried to conceal this asset from the Trustee. The Trustee has access to a number of asset checks and databases, and will find out about the transfer. Mary has jeopardized her bankruptcy and possibly the house itself. Tragically, Mary may very well have been able to keep the house if only she had kept herself on the deed with her mother.
Example 2: Simon owns a second home. His son graduates from college, and Simon wants his son to get a good start in life. Simon deeds the property to his son as a gift. Four years later, Simon files for a Chapter 7 bankruptcy. The Trustee will regard this as a fraudulent transfer even though Simon had no fraudulent intent, because Simon did not receive market value for the transfer. I cannot emphasize enough the importance of seeking the advice of a knowledgeable bankruptcy attorney before you start opening up accounts, closing accounts, transferring vehicle titles, deeding yourself off of real estate, etc.
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC