When you are considering bankruptcy, it is common to worry about what you may lose during the process. Often it is tempting to transfer your assets to a relative or friend in exchange for little or no money — that’s not a good idea.
If the bankruptcy trustee thinks you were trying to hide assets, they can legally get that property back and include it in your estate to satisfy creditors.
The trustee is given avoidance powers to set aside or nullify certain transactions by the debtor before filing bankruptcy — primarily transfers of property by the debtor. A transfer may be voluntary or involuntary like from a repossession, or a bank account being emptied by a creditor.
Part of the trustee’s function is collecting estate property and maximizing the estate’s value. The trustee’s avoidance rights enable them to avoid transactions and recover the debtor’s property for a period of 1 year, and sometimes up to 6 years depending on the state you are filing in.
If the trustee suspects fraud, the next step is to investigate the actions. If the trustee feels they have enough information, they could proceed to litigation. If the trustee feels there is criminal intent you could be fined or imprisoned.
A transfer is fraudulent if it was made “with actual intent to hinder, delay, or defraud any entity to which the debtor was or became…indebted.” 11 U.S.C. § 548(a)(1)(A)
Constructive fraud differs from actual fraud in that the debtor’s intent is of no import. A transfer is constructively fraudulent if: (1) the debtor received less than reasonably equivalent value in exchange for the transfer and (2) the debtor was (a) insolvent on the date of the transfer or became insolvent as a result of the transfer, (b) the debtor was engaged or was about to engage in a business or transaction for which any property remaining with the debtor was an unreasonably small capital, or (c) the debtor intended to incur or believed that it would incur debts beyond the debtor’s ability to pay as such debts matured. 11 U.S.C. § 548(a) § (1)(B).
Get a Good Lawyer
Filing bankruptcy can be complicated; having a Cincinnati bankruptcy attorney to help you navigate the laws is critical. Your lawyer can help you prove any assets you sold or exchanged were to pay your immediate debt and not to hide assets.