You can sell or transfer property before filing for bankruptcy, but doing so carelessly can create serious problems for your case. Bankruptcy courts closely review transactions made in the months before a filing, and transfers that appear designed to hide assets or favor certain creditors can be reversed or treated as fraudulent.
Why Pre-Filing Transfers Get Scrutinized
The bankruptcy process is built around fairness to all creditors. If someone could simply sell or give away valuable property right before filing to keep it out of the estate, the process would be easy to manipulate. Because of this, trustees and courts look closely at transfers made in the period leading up to a bankruptcy filing to determine whether they were legitimate or an attempt to shield assets.
What Counts as a Fraudulent Transfer?
A transfer may be considered fraudulent if it was made with the intent to hinder, delay, or defraud creditors, or if the person received less than the property’s reasonable value in exchange. Common red flags include:
- Selling property to a friend or family member for far less than it’s worth
- Transferring ownership of an asset without receiving fair payment in return
- Moving money into accounts or assets that are exempt from creditor claims right before filing
- Timing a transfer specifically to avoid a known creditor’s collection efforts
If a transfer is found to be fraudulent, a bankruptcy trustee can void it and bring the property or its value back into the bankruptcy estate.
Does This Mean I Can Never Sell Anything Before Filing?
No. Selling property for fair market value and using the proceeds for legitimate purposes, such as paying for necessities or reasonable expenses, is generally acceptable. The issue arises specifically when property is sold or given away below its value, or when the purpose appears to be keeping the asset away from creditors rather than a legitimate financial transaction.
How Far Back Do Courts Look?
Bankruptcy law allows trustees to review transfers going back a set period of time before filing, and in some cases, state law may allow an even longer lookback period for certain types of fraudulent transfers. This is one of several reasons it’s important to consult an attorney before making major financial moves if bankruptcy is a possibility in your near future.
What Should I Do Instead of Transferring Property?
If you’re worried about protecting assets before filing, the better approach is usually to:
- Speak with a bankruptcy attorney before selling or transferring anything of significant value
- Learn which exemptions may already protect the property you’re concerned about
- Time your filing strategically based on your specific financial situation
- Avoid paying back only certain creditors, like family members, shortly before filing, since this can also be scrutinized
Why This Matters for Your Case
A transfer that looks reasonable to you might look very different to a trustee reviewing your financial history. Getting guidance before making significant changes to your assets helps avoid complications that could delay your case or jeopardize your discharge.
How Law Offices of Terrence Fantauzzi Can Help
Understanding how pre-filing transactions affect a bankruptcy case is an important part of preparing to file. At Law Offices of Terrence Fantauzzi, we help clients review their financial history and plan next steps in a way that protects their case.
If you’re considering bankruptcy and have questions about a recent or upcoming sale or transfer of property, call Law Offices of Terrence Fantauzzi at (909) 552-1238 to speak with a bankruptcy attorney.
