Gifting of Property Prior to Bankruptcy

I plan on filing bankruptcy; however, I gave a car to my son 10 months ago. Will this affect him?

I recently answered this question: “My adult son was attending college full time 10 months ago. He relocated to another state due to girlfriend issues. I gave him a car to help him find a job since there is no public transportation. The car is valued at 7500. Would a bankruptcy trustee question this transfer?

The short answer is “yes,” a bankruptcy Trustee will question this transaction. The issue is whether the transfer of your car was “fraudulent”. In other words, was it done to deliberately thwart creditors’ attempts to collect their debts from you. If you intentionally gave the car away in order to avoid a creditor from getting it, then a bankruptcy Trustee may force your son to turn the car over. The Trustee will then sell it in order to generate funds to pay to creditors.

Most people that I see don’t intentionally transfer assets (a car, fancy jewelry, or even a house) to someone in order to thwart a creditor’s collection efforts; however, I do see people who- when faced with debt issues- want to get their financial matters in order, which sometimes includes transferring assets to people who they believe should own them, before moving forward with a bankruptcy filing. This natural desire to put things in place can be harmful if not done with the guidance of a competent attorney. Additionally, in cases like the question above, some people will transfer assets to others, such as their children, without respect to their financial situation at all.

The problem with transferring assets prior to filing bankruptcy is that a Trustee doesn’t have to prove actual fraud in order to overturn the transfer. In other words, the Trustee doesn’t necessarily have to show that you intended to thwart your creditors in order to seize and sell the transferred asset. The bankruptcy code, and most states, have fraudulent transfer laws that allow a Trustee to seize assets that were transferred for less than their market value within a certain time frame. In NC, where I practice law, the “lookback” period is 4 years. So in the example above, the Trustee may be able show that the father who transferred his vehicle to his son committed a fraudulent transfer, despite the fact that he didn’t intentionally do so to harm or prejudice his creditors. There are defenses to certain fraudulent transfer claims, and a good attorney can help you defend yourself.

The most important thing to do when you are facing debt issues is to consult with a bankruptcy attorney BEFORE transferring assets. Often, a competent attorney can give you options to protect the asset. Even if you have already transferred an asset and you are concerned that it could be construed as fraudulent, you should consult an attorney. You may have options. No matter what, tell your attorney everything- the good, the bad, and the ugly. An attorney cannot help you if you don’t share the whole truth.

At Kight Law Office, we assist people in making good decisions about asset planning in the face of debt problems. We will spend time with you to learn about your financial situation, hear what is important to you, and give you options so that you can move forward in a positive direction. We want to help write a new financial chapter in your life.