Transferring Property Before Bankruptcy - Total Bankruptcy
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Transferring Property Before Bankruptcy

Transferring property immediately before bankruptcy may raise red flags in bankruptcy court. If a judge determines that the transfer was fraudulent, the property transfer may be voided.

There are, however, some circumstances in which it is legal to transfer property before bankruptcy. The key elements are time and intent. If a person transfers property at least a year before filing bankruptcy, the bankruptcy court is more likely to recognize the transfer as valid.

If you have questions about the timing and nature of making a property transfer before bankruptcy, connect with a local bankruptcy lawyer today for a free consultation by filling out the form below.

Fraudulent Property Transfers Before Bankruptcy

If a bankruptcy trustee determines that you transferred property before filing bankruptcy solely to keep it out of the hands of creditors, the trustee may not recognize the transfer.

In order to commit a fraudulent property transfer, the bankruptcy filer must usually:

  • Make the transfer within one year of the bankruptcy filing
  • Transfer the property with the intent of defrauding creditors

The time element is pretty straight-forward, but it can be tough for a court to determine whether or not a person is trying to defraud creditors when transferring property before filing bankruptcy.

Because of this difficulty, courts often look at other factors to determine a person's intent, including:

  • Whether the person retains some ownership interest in the property
  • Whether the seller has a special relationship to the buyer
  • The financial terms of the deal
  • Whether a new corporation was created to absorb the assets

If the property transfer involves the creation of a new company, or if the seller is a family member of the buyer and the terms of the deal seem like a rip-off, bankruptcy trustees may be suspicious about the deal.

Legal Property Transfers Before Bankruptcy

While there are several different factors that may lead to charges of fraud, there are also perfectly legitimate property transfers that occur before bankruptcy.

If, for example, someone transfers property more than one year before bankruptcy for a fair price, this transfer may be viewed as valid.

The legality of property transfers also depends on the nature of your state's property and bankruptcy laws, as well as the views of the bankruptcy court in your jurisdiction.

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