First, it’s important to know that intentionally defrauding your creditors by transferring property can result in the bankruptcy court denying your discharge. That being said, there are many valid reasons and conditions for transferring property—if you can show the bankruptcy trustee that you received fair market value for your property transfer, or that the transfer falls outside the ‘look back’ period, then your property transfer will not adversely affect your bankruptcy filing.
Worst Case Scenario
A common worst case scenario in bankruptcy is that the trustee avoids the transfer and gets the property back for the purpose of liquidating it and distributing all or some of the money to your creditors. This is easily avoided by asking the right questions BEFORE filing your bankruptcy.
How Long Ago Is Long Enough?
Assuming you did not fraudulently transfer the property, you need to disclose transfers to insiders (family members, friends, etc) that occurred within the last four years. If the transfer was to a stranger (someone on Craigslist, for example) then the look back period is generally two years, for disclosing the transfer.
What Is The Trustee Looking For?
Essentially the trustee is looking to trace the value of the asset. If you had a vehicle (Keeping Your Car In Bankruptcy) worth $10,000 and you sold it for $10,000, you would be able to show the trustee that you got fair market value for it.
Next, the trustee may ask you what you did with the money. There are numerous appropriate answers, including spending it on household/living expenses, buying another car, or paying off debt, to name a few. The important thing is to discuss it with your attorney and make sure that the asset’s value can be traced and ‘exempted’ in the bankruptcy filing. If you sold a $10,000 car for $10,00 and still had $7,000 in a bank account, the trustee would want to see the bank account listed on the bankruptcy filing and showing the money in that account. Likewise, if you purchased a riding lawn mower with it, he would want to see that listed as an asset on your Schedule B for personal property.
What’s At Stake?
If you can exempt the asset, despite its value, you’re fine. If you liquidate the asset and can exempt the cash you received and/or the items you purchased with it, you’re also fine.
It’s OK to transfer assets prior to bankruptcy. Discuss honestly with your attorney your intent in doing so, and where the money went. Your attorney can then help determine whether now is a good time to file bankruptcy or whether you may want to wait out the look back period on transfers prior to filing.
Call 704.749.7747 today to speak with a Charlotte bankruptcy attorney about asset transfers or any other questions you may have related to bankruptcy.