One of the issues that can cause problems in your chapter 7 bankruptcy is the transferring of assets prior to the filing of your bankruptcy case.
When you file for bankruptcy you are required to disclose to the bankruptcy court if you have transferred any assets out of your name within the two years prior to the filing of your bankruptcy case. Depending on how the transfer occurred this could be no big deal or become a problem in your bankruptcy case.
Transfers that Typically Don’t Cause Problems
The look-back period for transfers of assets is two years prior to the filing of your bankruptcy case.
If you sold an asset prior to the filing of your bankruptcy case and sold the asset for what it is worth, then you likely won’t have any issues. For example, if you owned a motorcycle that is worth $6,000 and you sold it for $6,000 (or something close) then this sale likely won’t cause you any problems in your bankruptcy.
However, if you sold his same motorcycle for $1,000 then it will likely cause problems in your bankruptcy because it appears as though you were selling a valuable asset for far less than what it was worth – like you were just trying to “get rid of it”.
If the transfer or sale of the asset is a legitimate sale and you sell it for approximately what it is worth, then you likely won’t have any issues with the transfer in your bankruptcy case.
Transfers that Will Cause Problems
As mentioned above, if you sell an asset for far less than what it is worth the bankruptcy court can deem that transfer “fraudulent”. Even if your intentions are pure, the framework of the bankruptcy code deems such transfers as fraudulent.
Further, if you transfer any of your assets to an “insider” it could cause problems in your bankruptcy case. The term “insider” generally refers to anyone you have a close relationship, including family members, friends, or business partners. If you transfer an asset to an insider and don’t receive the reasonable value of the asset back, then the court can consider this transfer fraudulent and void the transfer.
What Happens if I Have Transferred Assets Prior to the Filing of My Bankruptcy?
If you are needing to file for bankruptcy but have transferred assets – even if you have innocently transferred assets – it is important to let your bankruptcy lawyer know that the transfer has occurred. Few things are worse than when your lawyer learns about an asset transfer for the first time after the case has been filed and we are sitting in front of a bankruptcy trustee.
If assets have been transferred the first step the bankruptcy trustee will take is to void the transfer and bring the asset back into the “bankruptcy estate”. This means that the bankruptcy trustee can reach out to the person who you transferred the asset to and require them to turn the asset over to the bankruptcy court. Then, the bankruptcy trustee can determine if the asset has any value that can benefit your creditors.
Here in Arizona the bankruptcy trustee may ask you if you would prefer to pay the cash value of the asset that was transferred to the trustee for distribution of your creditors or if you would prefer that the trustee go and get the transferred asset, sell it, and pay that money to your creditors.
In the situations mentioned above your case can still usually proceed as normal once the issue is taken care of with the bankruptcy trustee.
However, if the bankruptcy court believes that you were intentionally try to hide assets by transferring them to other parties they may ask the court to deny (or revoke) your discharge. If you don’t receive a discharge in your bankruptcy case then the debts still remain and it is as if you never filed for bankruptcy.
Ways to Avoid the Transfer Issue
The most common situation I run into with clients is when a parent purchases a car for a teenage child or for a newly married couple, the car is put in the name of the parent and the son or daughter then pays the vehicle off over time.
To all parties involved the car belongs to the son or daughter who paid for the vehicle and the parent’s name is only on the title because they never got around to taking it off.
The problem arises when the name on the title to the vehicle is never transferred to the child but remains in the name of the parent, and then the parent ends up having to file for bankruptcy years down the road.
The parent is then left with the problem of having too many vehicles in their name which will cause a problem in a bankruptcy case.
The easiest way to avoid this problem is to make sure that when you give a car to your kid or help the newly wed couple with purchasing a car that you take your name off of the vehicle so that you don’t run into problems down the road if you have to file for bankruptcy.
Thinking About Filing for Bankruptcy?
If you are struggling with debt problems give us a call. We offer a free consultation where we can discuss your bankruptcy and non-bankruptcy ways to deal with your debt problem once and for all. We can be reached at (480) 420-4028.
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