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What happens if you transfer property before filing bankruptcy?

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In a Nutshell

You are not allowed to transfer property for fraudulent purposes or for the purpose of hiding the property from your creditors.

Written by Attorney Eva Bacevice.  
Updated October 2, 2021

You do have the right to transfer your property at any time. You are not allowed, however, to transfer property for fraudulent purposes. You should always make certain that your actions are above board, otherwise there could be negative consequences.

In this article we will examine the different ways that a transfer of property may take place close in time to a bankruptcy filing. We will lay out the circumstances when such a transfer is appropriate  and those where it is not allowed or may trigger suspicion. To do so we will discuss:

  • What is the bankruptcy estate and what is the role of the trustee?

  • When (and how) is it OK to sell your property?

  • When (and how) is it not OK?

  • Circumstances that may trigger suspicion

  • What can the trustee do in these circumstances?

What is the bankruptcy estate and what is the role of the trustee?

As soon as you file for bankruptcy the “bankruptcy estate” is created. That means that all of your assets (everything that you own) are now contained within the bankruptcy. The bankruptcy trustee is the administrator who oversees the bankruptcy estate, and part of their job is finding non-exempt (unprotected) assets which can be sold and then shared amongst your creditors.

When is it OK (and how) to sell your property?

You are still allowed to sell your property before filing for bankruptcy,  but you want to follow certain guidelines to make certain there is no issue with your bankruptcy case. The most important thing is to always disclose information about a transfer. This is included in the paperwork you file for your bankruptcy in a document called “Your Statement of Financial Affairs for individuals Filing Bankruptcy” which goes into your financial history.

This is the part of your paperwork where you will need to list things like bank accounts, as well as any property you hold for another and any property you have sold or transferred. If you have transferred or sold something recently (generally within two years of your filing date),  you should bring all of the documents from the sale to your Meeting of Creditors, as the trustee is likely to have questions and will want to see any and all relevant paperwork.

If you choose to sell something for a legitimate reason, you should be fine. You’ll need records to back this up. For example, if you sold something you owned to pay for your rent, you’ll need receipts to prove that that’s where the proceeds from your sale went.

If you transferred something that has no value, that is also fine. Or if you sold something you are able to exempt (protect up to a certain value) in your bankruptcy paperwork, that will also not be an issue.

When is it not OK (and how) to sell your property?

The transfers which will be of interest to the trustee are those which took place within the two years prior to filing your bankruptcy, or the time allowed to set aside for fraud, whichever is longer. There are two types of fraud.

Actual fraud

First, there is actual fraud, which means that the transfer took place with the intent to defraud, delay or hinder creditors. This means that you sold or gave away property so that it would not be in your name at the time you filed your case, in hopes that the trustee would not have access to it.

Constructive fraud

There is also something called “constructive fraud” which means that the circumstances show that, for all intents and purposes, there was fraud. This is found when property is transferred for less than what it was worth and at the time you were insolvent (meaning your debts exceeded your assets). Insolvency is presumed if the transfer took place 90 days prior to filing . As an example, if you were to sell something for less than “Fair Market Value (FMV)” within 90 days prior to filing your bankruptcy case, that can be considered a fraudulent transfer which a trustee could void.

Circumstances that may trigger suspicion

You should avoid any fraudulent transfers but you should also be aware of what actions might look problematic. For instance, if you “sold” property but retained control over it, you’ll need to explain. Whenever you sell or transfer something to a family member or someone close to you, the trustee is going to check to see if you gave them a “sweetheart” (an unusually favorable) deal.

This does not mean you cannot sell something to a family member or friend, but you may have to prove that the sale was for the fair market value (FMV) of the property. It’s also always a good idea to track what you do with the proceeds of a sale.

It will also warrant a closer look if you sold or transferred property in response to being threatened with a lawsuit. And it is always a problem if you try to conceal the transfer, i.e. not disclose it in your bankruptcy paperwork. Always remember that you are signing, under penalty of perjury, that the information contained in the paperwork is true and accurate to the best of your ability.

Finally both the type of property (exempt vs. non-exempt) and timing can inspire a trustee to take a closer look. Any property that you exempted on your schedules is yours to do with what you choose, but you should still keep the trustee in the loop.

Non-exempt property transfers or sales, however, are always going to be reviewed. In this case the trustee may properly decide that as the property is not protected, it should be there to sell and distribute amongst your creditors.

Timing is also important - generally the “look back” period for a trustee is two years prior to filing but can vary by location and could extend back ten years. This is important to know for your state because any transfer or sale that was done as “pre-bankruptcy” planning (such as a systemic conversion of assets as an attempt to conceal them) could be considered fraud.

What can the trustee do in these circumstances?

If the trustee questions a transfer or sale and does find that fraud exists, there can be serious consequences to both you and your case. First, and most likely, the trustee can void the transfer, essentially canceling the sale as though it never happened so that they can take ownership to sell and distribute the proceeds amongst your creditors. This is the case for both actual and constructive fraud.

If they feel that the fraud is significant, they could file a motion with the court asking the court to dismiss the case and deny your bankruptcy discharge, and in a worst case scenario the trustee could refer your case for criminal investigation.


When you file a bankruptcy to seek relief you are opening yourself up to greater scrutiny for that time period. This does not mean that you cannot continue to live your life and make your own decisions regarding your property, but that you need to make certain that if you are making a property transfer you are following all the rules to the letter. It may seem like a lot of details to keep in mind, but the overall relief that you will get from your discharge will be worth the time you put in now.

Written By:

Attorney Eva Bacevice


Eva G. Bacevice graduated from the University of Michigan Law School in 2001. She practiced law for close to a decade in the area of consumer bankruptcy. She now works in higher education as an Academic Advisor for undergraduate students at the Stephen M. Ross School of Business,... read more about Attorney Eva Bacevice

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