The One Thing I Really Want Bankruptcy Clients To Do Is….

The one thing I really want my bankruptcy clients to do is speak with me before they transfer any assets.

Why? Because the sale of assets before or during a bankruptcy may present potential problems to a debtor in obtaining a discharge.

From time to time I will have a client who believes, incorrectly, that if he gets rid of things before he files for bankruptcy that those things are not counted as assets.

To the contrary, under the bankruptcy code, transfers of property for a period of one year before the filing of your bankruptcy and after the filing of the bankruptcy can be challenged.

Whether the transfer will prevent or delay a discharge will depend upon the intent of the debtor at the time of the transfer.

The bankruptcy code prohibits a debtor from intentionally transferring or concealing an asset if the transfer or concealment is intended to prevent the creditors or the trustee from using those assets to reimburse the creditors.

So when is a transfer just a transfer and when is it an attempt to prevent the creditors from getting assets?

Lets look at the sale of a car to consider the issue of intent. Some factors in determining intent might be:

Did the debtor get a fair price for the car?

If the sale was for a fair price then it is unlikely that a creditor could make the argument that the vehicle was sold in order to avoid its use to pay debts.

Did the debtor use the proceeds from the sale?

If the debtor used the proceeds from the sale then the trustee will have to investigate how the proceeds were used in an effort to determine the intent of the debtor.

However, keep in mind that even if both of the questions above are answered to the satisfaction of the trustee the discharge can be delayed while the trustee investigates the transaction.

On the other hand:

Did the debtor transfer the vehicle for little or no money?

Was the transfer a donation or sale of the vehicle to a family member or a friend?

Did the debtor continue to have access to and use of the vehicle after the transfer?

If the answer to any of the above questions is yes, then it is reasonable to expect that the trustee will determine that the transfer was an intent to defraud the creditors. At best the trustee will delay the discharge while an investigation occurs and ultimately either demand return of the money or set aside the transfer.

At worst, the trustee can seek a denial of the discharge.

How can this be prevented? Talk to your attorney before you transfer assets. An experienced bankruptcy attorney if consulted in advance of a transfer can advise you of the best course of action to legally protect your assets.