Transferring assets to others on the eve of bankruptcy is the single, easiest way to mess up your bankruptcy case.
Everyone seems to think
If an asset isn’t titled to you, it does not have to be disclosed in a bankruptcy filing.
I hear it and see it in action, again and again.
If it isn’t titled to you, it will be “safe” from the bankruptcy trustee and from creditors.
Wrong, wrong, wrong.
Transferring assets endangers your discharge
Wrong or not, people transfer titles to cars and cash and quitclaim their homes to friends before bankruptcy, thinking that’s smart.
No. It’s both dumb and dangerous.
Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts your bankruptcy discharge at risk.
Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.
What could delay your creditors more than shedding assets without getting anything in return?
Transferring assets unlawful since Elizabeth I
For well more than four hundred years, the law has contained prohibitions on fraudulent transfers.
A transfer of an asset by one who has debts constitutes a fraud on creditors if
1) the transfer is for less that fair consideration; or
2) was made for the purpose of putting the asset beyond the reach of creditors; or
3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.
So, a transfer is actionable even if it’s a gift to charity; you intended to hide the asset; or the transfer left you broke.
Consequences of fraudulent transfer
The usual remedy against the person who gets the asset is an order requiring the return of the asset or a money judgment in the amount of its value.
The bankruptcy code has a statute empowering the recapture of transfers made within two years of filing.
In addition, the bankruptcy trustee has the rights of the debtor’s creditors under state law to recovery any property that the debtor wrongfully transferred. In California, creditors have four years to recover fraudulent transfers.
Putting your assets in someone else’s name
So, a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney.
Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things.
Yet people again and again ask “what if I put it in someone else’s name?”.
As long as they ask me, I get a chance to say “Don’t do it”.
And they have a chance to get a discharge.
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Queen E. The First courtesy of Wellcome and Wikimedia.