A pre-bankruptcy asset transfer refers to the act of transferring assets or property to another party or entity before filing for bankruptcy. Such transfers can have significant implications, both legal and financial, for the parties involved.  Owe a friend money?   Want to throw a child a sweet sixteen birthday party with all the bells and whistles?   These could be problematic and cause big issues with an upcoming bankruptcy case!

First, one implication of a pre-bankruptcy asset transfer is that it can be viewed as an attempt to defraud creditors or hide assets from them. If a court determines that a transfer was made with the intent to defraud creditors, it can be deemed a fraudulent transfer and can be set aside. This means that the transfer would be reversed.  The assets would be returned to the debtor’s estate to be distributed to creditors.  It does not matter if you didn’t intend to defraud creditors.  Sometimes a reckless disregard for spending can be enough to trigger the trustee to act.   As the old adage goes:  “Where there’s smoke, there’s often fire.” Take caution.

In addition, a transfer before a bankruptcy filing can have significant financial implications for the parties involved. If the transfer is deemed fraudulent, the assets may be subject to seizure by the bankruptcy trustee. The parties may be liable for any damages resulting from the fraudulent transfer.  What if the recipient spends the funds? What if they don’t have money to pay the trustee?  Ultimately, the trustee can put liens on homes, force the liquidation of assets, or even wage garnishment. The transfer may also impact the debtor’s eligibility for bankruptcy relief.  It may be viewed as an abuse of the bankruptcy system.

Overall, a pre-bankruptcy asset transfer should be approached with caution.  It can have significant legal and financial implications. It is important to consult with an experienced bankruptcy attorney before making any such transfer. Finally, ensure that it is done in compliance with applicable laws and regulations. Talk to Leeders Law today.

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