May 23, 2016
You are struggling to pay your debts, and you are afraid of being sued. You own assets and you don’t want to lose them to creditors. What do you do to shelter your assets from your creditors? Many people assume that they can transfer the assets to a friend or family member, since the creditor can’t take someone else’s property. Or they get more creative, and grant a lien or a mortgage to someone close to them to make it appear that there is no equity for the creditors to pursue. While these may seem like good solutions, and many people see posts online about these methods of protecting assets, these actions can be reversed, and can have terrible consequences.
Transferring property to someone with the intent to avoid creditors is a fraudulent transfer under state law, as well as under §548(a)(1)(A) of the Bankruptcy Code. Granting a security interest in property without receiving reasonably equivalent value is also considered a fraudulent transfer, and may be avoided by a creditor under state law or the Bankruptcy Trustee under §548(a)(1)(b) in a bankruptcy proceeding.
In a bankruptcy context, the effect of avoiding these transfers is to force the person receiving the interest in property to return it to you, and consider it part of your estate. The person helping you shelter your assets may be sued as part of this process. You may be forced to sell the property, or to pay additional money into your bankruptcy to protect it from being liquidated by the Trustee. It is also possible that making a fraudulent transfer could be viewed as evidence of bad faith in filing the bankruptcy, and result in a refusal of discharge for your other debts.
The best way to protect your assets is to speak with an experienced bankruptcy attorney early in the process, and before you have started making transfers. The assets maybe exempt in a bankruptcy, and that making the transfer would create an issue unnecessarily. Otherwise, your attorney may be able to help you develop a strategy to reduce the potential loss of assets, and protect you from garnishments, levies, foreclosures, liens, and repossessions. If you are facing financial difficulties, call one of our attorneys to see what we can do to help.