Can You Transfer Assets to Family Before Bankruptcy?

If bankruptcy is in your near future, don’t try to move your assets around or transfer them, even to your family. Instead of protecting your assets, such action could have the opposite result, opening your bankruptcy case up to scrutiny and yourself up to serious consequences.

If a debtor transfers assets to their family, or anyone else for that matter, any time during the two years before they file for bankruptcy, the court might look closely at the transfer to see if it was done to hide the debtor’s assets, defraud creditors, or trick the bankruptcy court. This applies to asset transfers to irrevocable trusts as well. If you are concerned about losing assets during bankruptcy, and that is why you considered transferring them to family members before learning the issues it could cause with your case, there may be other alternatives. For example, if you file Chapter 13, your assets will not be at risk of liquidation at all. If you ultimately file Chapter 7, our lawyers can identify the right liquidation exemptions to make sure your home and other assets stay untouched during your bankruptcy case.

To schedule a free case assessment with Young, Marr, Mallis & Associates, call our bankruptcy lawyers today at (215) 701-6519 or (609) 755-3115.

Is it Okay to Transfer Assets to Your Family Before Filing for Bankruptcy?

Certain bankruptcy chapters involve the risk of losing assets to liquidation, which could deter some debtors, making them wonder whether they can transfer assets to close family to avoid losing them entirely.

The Bankruptcy Code addresses this under 11 U.S.C. § 548. Any recent transfers in the two years proceeding a bankruptcy case might be scrutinized. Transfers made during that time to intentionally defraud a lender or creditor to delay repayment or made to family members or others for less than the asset’s value might be avoided by the court, meaning stopped or undone.

Transferring assets to a family member specifically might draw more scrutiny during your bankruptcy case and seem preferential because of the close nature of the relationship.

If you sell property or other assets relatively close to when you file for bankruptcy, the court might consider how you use the proceeds from the sale. For example, the court might decide the sale is fine if you paid for reasonable housing and living expenses for you and your family using its proceeds. However, if debtors sell assets to make irresponsible purchases or intentionally misrepresent their financial situation during bankruptcy to get a discharge, they might face serious consequences for fraudulent transfers. Debtors might face similar issues when they put assets in irrevocable trusts too close to when they file for bankruptcy.

If there is an issue with recent asset transfers in a bankruptcy case, the debtor could lose their discharge for unsecured debts. There are also criminal consequences for fraudulent transfers or intentionally concealing assets during bankruptcy, according to 18 U.S.C. § 152, including possible fines and up to five years imprisonment.

How Can You Protect Assets During Bankruptcy without Transferring Them to Family?

Transferring assets to family or friends is not the right way to protect them or benefit the most from the bankruptcy process. If losing assets is your primary concern, our lawyers can determine whether your income is high enough to support a repayment plan, taking into account your expenses and dependents. If Chapter 7 is better suited to your situation, we can strategically choose liquidation exemptions to keep assets safe.

See if You Can File a Chapter 13 Bankruptcy Case

The bankruptcy chapter dictates whether or not assets are at risk of being liquidated. To determine if you can file Chapter 13, a non-liquidation bankruptcy, our lawyers can create a full financial profile of your situation. To do this, we will need certain information, such as your monthly income, recent tax returns, number of dependents, and typical expenses. We will also identify all debt liabilities and to which creditors you owe which amounts. Certain debts are dischargeable, and bankruptcy will erase them. Furthermore, after negotiating with creditors or lenders, we may be able to lower what you owe and agree to a favorable repayment plan.

When debtors file Chapter 13, all debts get consolidated under the same interest rate, which is typically low so that debt does not continue to grow unchecked during the repayment period. This repayment period could last anywhere from three to five years, depending on your monthly income and outstanding debts. While you repay creditors during your Chapter 13 case, they cannot come for your assets, like your car or house.

Pick the Right Liquidation Exemptions for Chapter 7 Bankruptcy

For debtors who cannot afford repayment plans on top of their monthly expenses, Chapter 7 bankruptcy may be necessary. In these cases, our bankruptcy lawyers can help debtors identify the most beneficial liquidation exemptions based on the specific assets they want to protect. Typically, debtors are most concerned about safeguarding their homes and vehicles. Some states have homestead exemptions debtors can claim, but others, like Pennsylvania and New Jersey, notably do not. If your state does not have a homestead or vehicle exemption, our lawyers can confirm if you can choose federal exemptions instead.

Picking exemptions from the onset of your case is important so that you know exactly which assets you can feasibly protect before filing. Sometimes, the reason for the debtor’s financial issues is the asset they want to protect, like their home. For example, if you defaulted on your mortgage, you could face foreclosure, which you can stop with bankruptcy. However, if, during bankruptcy, you do not exempt your house from liquidation, it could be taken to repay the mortgage lender, which is precisely what liquidation exemptions can help debtors avoid during Chapter 7 cases.

Call Our Lawyers to Talk About Your Bankruptcy Case

To schedule a free case review from Young, Marr, Mallis & Associates’ Philadelphia bankruptcy lawyers, call (215) 701-6519 or (609) 755-3115 today.