Transfers of Assets and Bankruptcy
Question: Can I transfer my assets right before a bankruptcy and still file?
Short Answer: No. But you can keep your property.
Most of my posts come on the heels of conversations with clients. The reason for this is that when I speak with someone on the phone I am reminded of the common questions clients have.
A recent phone conversation with a client centered around two transfers she had made. First, about six months ago she transferred $10,000 from an account in both her and her husband’s name, into an account in just his name. Second, a creditor obtained a judgment against her recently and she transferred her vehicle from her name only, to her husband’s name only.
Married, Filing Solely
This particular client was inquiring about filing bankruptcy just in her name. Her husband has income, she has very little. They share expenses. He has good credit, she does not. She has a lot of credit card debt in her name only. Filing a Chapter 7 just in her name makes sense to discharge debt which is just in her name and to protect his credit.
Look-Back Period For Transfers
Generally, the rules of bankruptcy have a one year look-back period for transfers. While the trustee has some discretion as to the nature or purpose of the transfer, the trustee is looking for a ‘fraudulent conveyance,’ or one which was done specifically to protect money or assets from creditors.
Consequences of Fraudulent Transfers
If the trustee determines the transfer was done to protect assets from creditors, he can bring the asset or funds back into the estate of the debtor, and make it available to creditors. In the case described above, part or all of the $10,000 could be pulled into the estate and the vehicle as well. Additionally, the exemptions available to debtors in bankruptcy will be lost in this scenario.
For a vehicle, North Carolina allows a $3,500 exemption per individual. There is also a wild card exemption of $5,000. That allows a total of $8,500 of equity in a vehicle which can be protected from creditors seeking to collect on a judgment, or creditors in bankruptcy. If the client had not transferred the vehicle, she could have used those exemptions to protect her car. Essentially, the transfer was unnecessary and limited her options.
What Do You Advise?
Call an attorney before you make a transfer. The attorney may advise the transfer given the larger picture, but what feels like the right thing to do in the moment may trigger some long-term consequences or may limit your options as to the timing of a filing for bankruptcy. A Charlotte bankruptcy attorney can quickly help you decide.
I’m available to help. Call me at 704.749.7747 to discuss your situation. I am honestly eager to hear from you.