I am often asked, “Can I transfer my car or my house to my relatives before I file bankruptcy?” The answer is very simple, NO.
It is a lot worse when clients come into my office and they have already transferred an asset (often because of bad advice.) I often have to tell people you can’t file bankruptcy because of the transfer. Many times these people would have been able to file bankruptcy and keep their assets if they hadn’t made the transfer.
The answer has always been don’t make the transfer if you plan on filing bankruptcy. It is a lot harder to transfer assets and not get caught because of the Internet being used to helping people uncover the transfers. Bankruptcy law gives the Trustee the power to undo those transfers and bring that asset back into your bankruptcy. They can get a court order to undo the transaction and recover that asset from your friend relative or third party. This is called a fraudulent conveyance.
The trustee generally will be able to block your exemption in the asset if you made a fraudulent conveyance. This creates the worst scenario, you lose the asset you were trying to protect and you don’t get your exemption.
Example: You have a shiny old mustang convertible worth $7000 and you transferred it 9 months ago to your Uncle Morty. You then file bankruptcy. The trustee discovers this and recovers the car.The trustee goes to sell the car and then distributes the money to your creditors. You do not get your exemption in this asset.
If the car was still in your name at the time you filed the bankruptcy you could have taken your state’s automobile exemption. In Ohio, the exemption is $3200. You could have held on to that money or the car if you had not transferred it.
You could have filed Chapter 13 if the asset was worth a whole lot more. This might have protected that asset you tried to hide. You can also lose the benefit of your discharge if you transfer too many assets. How far back the trustee can reach depends on a number factors. These factors include time, your financial situation and even who you transfer it to.
The general rule is don’t make transfers prior to filing a bankruptcy. The most important thing you can do is always consult a bankruptcy lawyer before taking any action.
If you are planning on filing a bankruptcy soon, it is always best to learn your rights first.
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Last modified: March 10, 2013