The Risks Of Giving Away Assets Before You File Bankruptcy
Wondering if you should give any of your personal belongings away before you file bankruptcy?
There is a lot of bad information out there about bankruptcy, and just one piece of it is that people who file bankruptcy lose all their property. First of all, that’s not true. But it leads some people to make bad decisions, like giving their property away before they file bankruptcy. Only what they’re really doing is giving it to a friend or relative to hold while they go through the bankruptcy process. In effect they’re trying to hide their property, thinking that will let them keep it. It’s a bad idea.
When we prepare your petition, we have to complete the Statement of Financial Affairs (SOFA). The SOFA requires you to respond to several questions, including whether or not you have transferred any property within the two years prior to filing. A transfer includes either giving away, selling, or trading property. We have to list what you transferred, when, and to whom you transferred the property to.
Keep in mind that when you sign your bankruptcy petition, you are affirming that you have disclosed all of your financial affairs and that the information is true and complete. When you go to the meeting of creditors, you will be under oath and the trustee will ask you the same question.
If you fail to disclose those transfers or provide incomplete information, you could find yourself in a worse position than before you filed. Your case can be dismissed and you can be prosecuted for lying on your petition and to the trustee.
One other thing: some bankruptcy trustees will ask whether you’ve made any transfers within the last four years at the meeting of creditors. State law allows them to invalidate transfers that were made to defraud creditors during the prior four years. This shouldn’t be a problem if all you’ve given away is some old clothes or furniture to Goodwill, but if you transferred any real estate to a relative for less than market value, for example, there could be trouble.
Keep in mind that most people who go through bankruptcy are able to keep most, if not all, of their property. The rules within the Bankruptcy Code, called “exemptions” protect a certain amount of property and are fairly generous. Any property that isn’t protected is usually a luxury or non-necessity item, like a boat, expensive electronic equipment, or art or collectible items.
You have other options besides just giving that property away. When you come in for a consultation, we’ll talk more about what those options are and make sure you make it through the bankruptcy process with as much of your property as possible.
If you have questions about what you should do with your property before you file bankruptcy, we hope you’ll come in for a free, no-obligation consultation with an experienced bankruptcy lawyer. You can make an appointment with our online scheduling system or call 303.331.3403 to make an appointment that’s convenient for you.
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