The desire to protect your assets from creditors is natural, and it’s the main reason debtors file bankruptcy. But there are certain types of asset transfers that are simply illegal when done right before filing bankruptcy. Let’s take a look at a few:
1. Transferring your property into someone else’s name. Some debtors unwisely transfer their assets into the name of a relative or friend because they don’t want to lose the asset in bankruptcy. However, such actions are illegal, and in many cases it’s unnecessary. If you transfer property into someone else’s name, especially in the year before your bankruptcy filing, the bankruptcy trustee may attempt to reclaim the property and deny your bankruptcy discharge.
2. Selling your asset for less than its market value. If you sell an asset for significantly less than its market value, this may be considered an illegal transfer by the bankruptcy trustee, especially if the property is not exempt in bankruptcy. For example, selling your used vehicle to your son for 50% of its value may be considered an illegal transfer by the bankruptcy trustee depending on the asset’s value, the timing of the sell, and whether or not the vehicle is considered exempt property.
3. Paying off family loans. The bankruptcy trustee will disallow any payments you’ve made to family members within 90 days before filing bankruptcy. These types of preferences are disallowed in bankruptcy because it leaves other creditors at a disadvantage. If you paid off a family loan right before filing bankruptcy, depending on the amount, the trustee may demand that the family member return the cash to the bankruptcy testate.
If you want to transfer or sell assets before filing bankruptcy, talk to a Bethlehem Bankruptcy Lawyer to find out if you can do so without negative consequences.