Should I transfer property to avoid losing it in bankruptcy?
Ah, this is one of the biggest no-no’s in bankruptcy law. Not only are you asked this question in your bankruptcy papers (specifically, the Statement of Financial Affairs), but when you go to Court, the Trustee in your case asks you this question point-blank.
It’s called a “preference” to transfer property prior to filing bankruptcy. In Pennsylvania, a bankruptcy trustee can actually ask about transfers that may have happened up to 4 years prior to the bankruptcy filing. And a preference could consist of a transfer of real estate or of personal property, like a car or boat. It can even be when someone takes their name off of a joint bank account, for example.
If the bankruptcy trustee discovers a preferential transfer, then the trustee can take legal action against the person to whom you transferred the property. For example, let’s say that 2 years prior to your bankruptcy case filing, you signed the title of a brand-new car over to your brother. The bankruptcy trustee could then force your brother to surrender the vehicle.
What is the solution to a bankruptcy preference? You should never transfer property like this. In most cases, if you simply retained control of the property, you might very well be able to protect it using the bankruptcy “exemptions”. Remember that you are legally able to keep a reasonable amount of property using the bankruptcy exemptions. The exemptions are the laws that permit individuals to retain their property while filing a bankruptcy. For example, a person can protect up to $40,000 in home equity as a married couple, or up to $3,225 in equity in a vehicle. Used carefully, the bankruptcy exemptions can protect the vast majority of property for most individual bankruptcy filings.