Can I shelter property by transferring it to family members?


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shelter property bankruptcy consumer bankruptcy

Can I shelter property by transferring it to family members?

You can probably not shelter property by transferring it to a family member.

If you make a gift or other transfer for inadequate consideration to anyone, whether they’re in your family or not, a Chapter 7 trustee can recover the property or its value if your case is filed within one year afterwards. If you have an actual creditor who would be entitled to avoid the transfer, even in part, under your state’s statutory or common law of fraudulent transfers, a Chapter 7 trustee can exercise that power to avoid the whole transfer. Therefore, gifts to family members (or to anyone else) will not work (but see the paragraph on “family gifts” for a qualification of this rule).

Let’s say you owe Uncle Seymour $100,000 because he loaned you that amount so you could get your cancer operation that, thankfully, was a success. If you repay more than $600 of that debt any time within the year preceding your bankruptcy filing, a Chapter 7 trustee could recover it as a “voidable preference”. It’s a “preference” if it allows Uncle Seymour to recover more than he would recover if he had to share like your other creditors.

The rules about fraudulent transfers apply to anyone, not just family members. The one-year lookback period for preferences applies to any “insider”, which includes many business associates as well as relatives within the third degree of kinship. Uncle Seymour is related in the third degree. Your Cousin Bob is related in the fourth degree, so the lookback period for a debt to him would only be 90 days.

(Reviewed 11.14.08)

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