Transferring Property Before Bankruptcy May Cause Problems
Posted By Nicholas Westbrook on Feb 16, 2010 2:46pm PST
You may qualify for Chapter 7 Bankruptcy relief if you are insolvent and cannot afford to pay your creditors. Although Chapter 7 provides numerous advantages for debtors, including help with credit card debts, medical bills, and private loans, it has some disadvantages, as well. Ownership of non-exempt property constitutes one of these disadvantages. Chapter 7 is known as a “liquidation” Bankruptcy, meaning all non-exempt assets and property will be liquidated to pay back your creditors. Therefore, if you own real property, besides your homestead, it will likely be liquidated by the Bankruptcy Trustee and any proceeds will be used to pay your creditors.
Some debtors think they can get around this rule by transferring the property or creating a trust for the property. Despite some exceptions, the general rule is that a transfer of property will be deemed fraudulent if it is done within 1 to 2 years of the Bankruptcy filing. This is commonly known as a "fradulent transfer." According to Section 548 of the U.S. Bankruptcy Code, property transfers made within 2 years of the Bankruptcy filing are deemed fraudulent and can be avoided by the Bankruptcy Trustee if there is actual fraud or constructive fraud. In most cases, the debtor commits constructive fraud by gifting the property to a friend or relative or by selling the property below market value. Even if the debtor does not actually intend to defraud creditors, a gift or below market transaction can be problematic, depending on the circumstances. In most of these cases, the Bankruptcy Trustee will seek Court intervention to avoid the fraudulent transfer, obtain the money connected with the transfer, and pay back the creditors. The Trustee may also move for a dismissal of the pending case, which can have severe consequences on the debtor and his or her ability to file a subsequent Bankruptcy in the future.
To learn more about Chapter 7 Bankruptcy and avoiding fraudulent transfers of property, please contact the Law Office of Nicholas R. Westbrook
at (713) 893-6204.
Mr. Westbrook is a motivated and honest Houston Bankruptcy Lawyer who can answer your questions and explain your options. To schedule a FREE consultation and determine if Bankruptcy is the right solution for you, please call us today at (713) 893-6204. Stop letting debt ruin your life.