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What Happens if I Transfer Property Before Filing Bankruptcy?

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In a Nutshell

Transferring property includes selling it or giving it away. If you file bankruptcy, you have to report any property transfers in the two years before you filed on your bankruptcy forms. If the bankruptcy trustee finds that you fraudulent transferred any property, they can undo the transfer to get the property back and sell it to pay your creditors. Read on to learn more about property transfers and how to deal with them when filing bankruptcy.

Written by Attorney Paige Hooper
Updated March 21, 2022

It’s no surprise that when you file bankruptcy paperwork, you must list all your assets and debts. You’re also required to provide information about your income and expenses. But did you know you must also list any property transfers for the past two years? 

Of course, you have the right to transfer your property — that is, to sell it or give it away — at any time, including before you file bankruptcy. But after you file, the bankruptcy trustee has the right to undo any transfers that qualify as fraudulent under the Bankruptcy Code. This article covers what counts as a transfer, what kinds of transfers are considered fraudulent, the consequences for fraudulent transfers, and what you can do if you’ve recently transferred property. 

What Are Transfers and Why Do They Matter?

Under the Bankruptcy Code, a transfer is when you sell or give away your legal rights to an asset. For example, selling your car is a transfer. If you let someone else borrow your car for an extended time, but your name is still on the title, that’s not a transfer. Other transactions that don’t count as transfers include:

  • Giving gifts for birthdays, holidays, and special occasions (within reason).

  • Donating items to Goodwill or a similar charity. Donating money to a charitable organization, though, usually does count as a transfer.

  • Tithing or giving to a religious organization, as long as it’s less than 15% of your gross annual income.

The Bankruptcy Estate

Everything you own at the time of your bankruptcy filing is considered part of your bankruptcy estate. Your trustee oversees and administers your bankruptcy estate during the bankruptcy process. In a Chapter 7 case, the trustee can liquidate the assets in your estate and use the money to pay your creditors. 

Bankruptcy exemptions allow you to claim some of your assets as exempt, meaning the trustee can’t sell them to pay your debts. In theory, the total value of your bankruptcy estate, minus the total value of all your claimed exemptions, is the amount that the trustee can pay to your unsecured creditors. Most people filing Chapter 7 bankruptcy, though, can claim everything in their bankruptcy estate as exempt. 

The Trustee’s Role

In most cases, there’s no non-exempt property for the trustee to liquidate. Still, one of the trustee’s duties is to make sure your estate contains everything that’s required by the bankruptcy laws. That includes any assets you sold or gave away in a fraudulent transfer. It’s the trustee’s job to undo such transfers and bring those assets back into your estate. In other words, you can’t keep assets that you otherwise wouldn’t be allowed to keep by simply transferring them out of your name before filing your bankruptcy petition. 

Under the Bankruptcy Code, the trustee must review any transfer that happened during the two years before you filed your bankruptcy case. This two-year period is sometimes called the “look-back” period. The look-back period is longer for some types of transfers. For example, if you transferred assets to a self-settled trust, the look-back period is 10 years. Your state’s laws may also provide for a longer look-back period for certain kinds of transfers.

What Counts as a Fraudulent Transfer?

Just because a transfer happened during the look-back period, it’s not automatically a fraudulent transfer. The Bankruptcy Code identifies two types of fraudulent transfers (sometimes called fraudulent conveyances): actual fraud and constructive fraud.

Which Transfers Count as Actual Fraud?

The key factor in determining whether a transfer is actual fraud is intent or the reason you transferred the property. A transfer is actual fraud if you transferred an asset with the intent to delay or defraud your creditors. In other words, a transfer is actual fraud if the reason you transferred the asset was to keep your creditors from getting it during your bankruptcy case. 

Which Transfers Count as Constructive Fraud?

Unlike actual fraud, constructive fraud can happen even if you didn’t intend to deceive or defraud anyone. There are two requirements for a transfer of property to be considered constructive fraud. First, you must have received less than the property was worth at the time. For example, you needed money quickly, so you sold your car for $5,000, even though it was worth $9,000. Giving assets away is another example.

The second requirement for constructive fraud is that you were insolvent at the time of the transfer, or you became insolvent because of the transfer. Insolvent means that the total of your debts is more than the total value of your assets. By law, it’s presumed that you were insolvent during the 90 days before the date you filed bankruptcy. Both requirements must be met for a transfer to be constructive fraud.

Which Transfers Aren’t Considered Fraudulent?

Some transfers aren’t considered fraudulent even though the transfer happened during the look-back period. If you sold an asset to someone for fair market value, the transfer usually isn’t fraudulent. In this scenario, the property that left your estate is about the same value as the money or property you received in exchange. In other words, the transfer didn’t affect the overall value of your estate.

If the asset you transferred was exempt, the transfer usually isn’t fraudulent. If you hadn’t transferred the asset and still had it when you filed bankruptcy, would you be able to claim it as exempt? If so, it usually won’t be considered a fraudulent transfer because even if the trustee got the property back, the exemption would prevent them from liquidating or selling it. 

Likewise, if you gave away an asset that didn’t have any real market value, the transfer likely isn’t fraudulent. Property with little or no resale value wouldn’t have any meaningful impact on the value of your bankruptcy estate. Put another way, if the trustee got the property back, selling it wouldn’t bring in much money for your estate.

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What if I Need To Transfer (or Already Transferred) Something?

If you must sell or give away property before filing bankruptcy, or if you plan to file bankruptcy and have already transferred property within the past two years, being prepared can help things go more smoothly with your trustee. Keep records about the transfer and bring copies to your meeting of creditors so the trustee can review them. Be ready to explain how you spent any money you received from the sale.

Be sure to fill out all the requested information in your bankruptcy forms, especially your Statement of Financial Affairs. Disclose and explain as much as possible and have documentation on hand if necessary. Being honest about your transfers will usually help the trustee’s investigation go much more quickly and help keep your case on schedule. 

Certain transfers will always raise red flags with the trustee, such as:

  • A transfer to a family member, business partner, or another insider.

  • A transfer that happens right after a creditor sues you or threatens to sue you. You’ll likely need to show that you didn’t just transfer the asset to protect it from the lawsuit.

  • A transfer that appears to be in name only. For example, if you transferred your car title into your sister’s name, but you still have the car and drive it regularly, you’ll probably need to explain why you transferred the title.

  • A transfer that’s not listed in your bankruptcy paperwork. If you forgot to list something, you can amend your paperwork to include it.

Avoid these red flags if possible or be prepared to explain to them if they’ve already happened. If you don’t have a good explanation — that is, if you intentionally transferred assets to keep your creditors from getting them — consider contacting a local bankruptcy attorney to get legal advice. Waiting to file bankruptcy until after the look-back period has passed can sometimes be a form of bankruptcy fraud itself, so it’s wise to understand your options before proceeding. Many bankruptcy lawyers offer free consultations.

What Happens if the Trustee Determines a Transfer Was Fraudulent?

If your trustee reviews a transfer and determines it falls within either of the Bankruptcy Code’s definitions of fraud, they’ll probably file a motion to void — or undo — the transfer. The trustee gets the transferred asset back from whoever you sold or gave it to. The asset becomes a part of your bankruptcy estate, and the trustee can sell it and use the proceeds to pay your creditors.

Depending on the circumstances, the trustee can take further action, especially if they find that the transfer involved actual fraud. The trustee can ask the bankruptcy court to deny your bankruptcy discharge or dismiss your case. In cases of significant actual fraud, you could face criminal charges for bankruptcy fraud and/or perjury.

Let’s Summarize…

If you transfer assets before filing bankruptcy, the trustee may be able to get the assets back and liquidate them to pay your creditors. The trustee can undo any transfer that qualifies as fraud under the Bankruptcy Code. There are two types of fraudulent transfers under the code. Constructive fraud is transferring property for less than its fair value while you were insolvent. Actual fraud is transferring assets to keep them away from your creditors. Actual fraud can result in additional consequences. 

Be sure to disclose all recent transfers in your bankruptcy forms. You should also be prepared to explain any transfers to the trustee and provide documentation if necessary. Being forthcoming about any transfers will help the trustee’s investigation go smoothly and can help prevent a finding of actual fraud.

Written By:

Attorney Paige Hooper


Paige Hooper is a seasoned consumer bankruptcy attorney with 15 years of experience successfully representing debtors in Chapter 7, Chapter 11 and Chapter 13 cases. Paige began practicing bankruptcy law in 2006 and started her own solo, multi-state bankruptcy practice in 2012. Gi... read more about Attorney Paige Hooper

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