The purpose of this task is to assure the court that you have not attempted to hide assets in order to protect them from being seized and liquidated to pay back creditors. Some people, in an attempt to hold on to asset, will either give it to a family member or friend with the intention of having them give it back to you once you have file bankruptcy and had your debts discharged. For example, you may own a vacation home that you don’t want to lose in the bankruptcy proceedings. So, you transfer the deed to your Uncle Joe. The goal, in your mind, is to protect this asset from being sold to pay back your creditors. There is an implicit or explicit understanding between you and your uncle that once the bankruptcy proceedings are over with, that he will deed the property back to you.

While this all sounds good, in theory – in practice, you have committed fraud in the eyes of the bankruptcy court. If discovered, the court will most likely rule this as a fraudulent transfer of assets. In this case, the likely outcome is that the asset will be seized anyway, liquidated for the creditors, and the bankruptcy dismissed. In other words, an all around loss for you. You may think that you can hide your transfer by simply responding no when asked if you have transferred any property within the last two years. However, if you do this, you have committed perjury which not only puts you at risk for a jail term but, in addition, nullifies your bankruptcy request.

If you have substantial assets that you really want to protect, the best way to handle a situation like this is to gift the asset away and then wait two years. This way no red flags will be set off when you are asked if you have transferred any assets within the past two years, because in truth you have not. Of course, not everyone can wait two years to file for bankruptcy. In this case, your best option is to try to have the asset claimed as exempt from liquidation. Depending on the state that you are filing bankruptcy in and type of property under discussion, your request may be granted. If not, you might want to reconsider whether bankruptcy is your best option.

Tags: Bankruptcy, Debt, Property

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