Be careful of transferred property, especially to a family member.
Bankruptcy offers a fresh start and offers a way to hold on to the property that you need to make a fresh start. The key to receiving bankruptcy protection is complete disclosure. (what lawyers call “good faith”).
One of the most important ways the trustee and the court will assess whether you have filed your bankruptcy in good faith is by looking at property transfers that you may have made before you filed your petition.
The most commonly covered “look back” at property transfers is the ninety (90) day look back period called a “preference” period. This is an important look back period; however, there are others that you should be aware of. The look back at property transfers can extend as long as ten (10) years.
The 90-day look back: Preference
The “preference” look back is aimed at making sure that your creditors are treated equally and that you have not preferred one creditor to the detriment of another while you were insolvent. The trustee has the power to avoid a transfer that you made, while insolvent, within a ninety (90) day period before you filed your bankruptcy petition. This time period is one (1) year if the person that the transfer was made to was an “insider”. When a transfer is “avoided” the money or asset that you transferred is recovered by the trustee and is used to pay your creditors.
The 2-3 year look back: Actual or Constructive Fraud
The actual or constructive fraud look back looks at your activity while you were, or were in the process of becoming, insolvent. Transfers that circumstances suggest that you made to actually hide assets from creditors can be avoided. (The money or asset can be recovered by the trustee and sold to pay your creditors.) Also, transfers of property that were made for less that fair market value that were made while you were unable to pay your other debts may be avoided. These include amounts paid to an “insider” under an employment contract. These transfers include voluntary or involuntary transfers. (In other words if your bank exercised a set off against an account those funds can be recovered to fund your bankruptcy.)
The 10-year look back: Actual Fraud
The trustee may avoid any transfer of interest made within ten (10) years before the date you filed your bankruptcy petition if the court determines that the transfer was made with the actual intent to hinder, delay, or defraud a creditor. This look back period also gives the trustee the power to avoid any transfer made to a self-settled trust.
There are serious consequences for a finding of fraud by the bankruptcy court. Your assets can still be sold and you will be denied a discharge of the remaining debts. This is the scariest part of bankruptcy! But, if you are honest with the court you have nothing to worry about! There are ways to keep your assets and receive a discharge of the debts that are overwhelming you and threatening to prevent you from taking care of your basic needs. Bankruptcy is a plan for a fresh start and the court is willing to help those who seek help in good faith.