I always thought this was an obvious point, but after having many clients ask me, "what if I give the property to my (insert family member)", I think this issue should be addressed.
When one files bankruptcy, they have a duty to disclose their entire financial picture, including any transfers they have made over the past two years. The failure to knowingly list a transfer may result in the denial of the debtor's discharge, meaning that there was no reason to file bankruptcy. Or worse, the Debtor could be subject to criminal prosecution for bankruptcy fraud.
Sometimes a potential client may have an asset that is not subject to being exempt (that is, untouchable by the trustee). Sometimes it is a car. After going through the scenario of either losing the car in a chapter 7 or paying for the car in a chapter 13, I often get the question, "what if I transfer the car to my brother?" One is free to make the transfer, but the transfer must be disclosed in the bankruptcy.
If the transfer was done without consideration, that is, the person who the property was transferred to gave nothing in return, the bankruptcy trustee can recover the property. The bankruptcy laws give a lot of authority to the trustee. The trustee in a bankruptcy case has a duty to investigate a debtor's financial affairs. Within that investigation is the examination of any transfers from the debtor to anyone else. The Trustee can apply the law of the state and look back four years in Florida.
Even if the transfer was done with no intent to hide the asset and was given as a repayment of a debt, the Trustee could still seek recovery of the asset. Transfers to family members within one year of the filing of the bankruptcy, even if it is for the repayment of a debt, can be avoided by the Trustee as a "preference".
The rationale for these recoveries is to put all creditors on equal footing. The court does not distinguish American Express from Aunt Millie.
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