Written by Craig D. Robins, Esq.
If every person could transfer their valuable assets out of their name before filing for bankruptcy, then few people would pay their debts, everyone would file for bankruptcy, and our economic system would collapse.
Obviously, we have laws to prevent this very type of conduct. If a debtor makes a transfer with the intent to hinder, delay, or defraud creditors, the bankruptcy trustee has the power to set the transfer aside.
Even if the debtor does not have this intent, If the debtor transfers a valuable asset prior to filing bankruptcy and does not receive reasonable value in return, then the transfer is called a “fraudulent transfer,” and the trustee can sue the person who received the asset to bring it back into the bankruptcy estate, so that all creditors can share in its value. In order for the trustee to be able to do this, the debtor must also be insolvent at the time of transfer.
One part of the bankruptcy petition requires the debtor to indicate whether he or she made any recent transfers of valuable assets. In addition, Long Island bankruptcy trustees routinely ask about such transfers and always ask about real estate that the debtor may have sold or transferred in the prior six to ten years.
If the bankruptcy court determines that a debtor made a fraudulent transfer with the intent to avoid paying creditors, then it might also determine that the debtor should not be entitled to receive a discharge, which means that there is no protection from creditors.
Thus, transferring valuable assets prior to filing should not be done without first speaking to a qualified Long Island bankruptcy attorney.
Debtors who have valuable assets do have options. One is to consider pre-bankruptcy planning, which involves turning non-exempt assets into exempt assets. Another option is to consider filing for Chapter 13 bankruptcy.