Should I Transfer Property out of My Name before Filing for Bankruptcy?

It seems like an easy fix, when making attempts to protect assets from creditors prior to deciding to file for bankruptcy to move those assets from your name to a son or daughter or sibling or parent. Often, when people have quit-claimed a home to someone else to protect it from a creditor, they still do not realize, at that point, that they may end up filing for bankruptcy. In other cases, the transfer is made simply for “estate-planning purposes,” or, in other words, to keep a piece of property in the family in the event of a tragedy without planning for its proper transfer within a legal will or bequest.

Either way, transferring property in this manner can cause a great deal of difficulty when it comes to filing for bankruptcy afterward.

I’ll address the “estate-planning” reasoning first: have a proper estate planning document drafted by an experienced attorney to ensure that your property is administrated according to your wishes after your death. Quit-claiming a 50% interest in your home to a loved one prior to your death, for example, is a less than airtight way to ensure that that loved one receives the home and, further, can complicate the financial life of that loved one prior to your death. If that loved one needs to file for bankruptcy, suddenly, they now ”own” 50% of a piece of property that must be protected from liquidation in the bankruptcy. There may be taxable issues as well for that loved one.

Transferring assets to evade creditors is a bad idea for a few different reasons.

First, it simply does not work particularly well. Such transfers are fairly obvious to spot on the record and can be unwound by creditors. Such transfers may generally (and rightfully) be considered a fraudulent conveyance, which, by definition, is a transfer of property made for the purpose of evading creditors, depending on state statute.

Second, with particular regard to bankrutpcy, all transfers of property within 2 years of filing a bankruptcy petition must be reported on your bankruptcy petition. If the transfer looks or smells like it has been done in order to evade the liquidating power of a Chapter 7 bankruptcy trustee, a Federal criminal charge of Bankruptcy Fraud can be raised, not to mention the possibility of having the transfer declared fraudulent in a court action by the trustee and the property liquidated anyway, or the possibility of having the bankruptcy petition dismissed.

In short, if there is any possibility that you will bankruptcy within the next two years, do not transfer, quitclaim, assign, or otherwise dispose of assets. For most people, virtually all property can be protected in a bankruptcy. In the smaller percentage of cases where this is not possible, it always better to make a decision to file bankruptcy with the full financial consequences at hand, as they genuinely stand in reality.

If you are a Michigan resident and would like to speak to an attorney about the possibility of filing for bankruptcy, please contact me at (248) 977-4182 or jhilla@aronofflinnell.com