One of the most hot button topics in the bankruptcy world is the disposal of assets by people who are going to be filing for bankruptcy.
Every so often I am asked by folks who are considering bankruptcy as a financial option if they are allowed to transfer the title to their vehicle or home to a family member so as to avoid losing it in a Chapter 7 liquidation bankruptcy case. The answer is almost always a resounding no. There are some situations where asset protection planning can be utilized- but never directly before a bankruptcy filing.
For example here is the tragic tale of former AIB (Anglo Irish Bank) executive David Drumm. According to a Forbes article, Drumm owed AIB over $11 million from a personal loan made to him during his employment with the bank. Drumm filed for Chapter 7 bankruptcy protection in Massachusetts to wipe out the debt. The Trustee assigned to Drumm’s case filed an adversary proceeding within Drumm’s bankruptcy case to revoke his bankruptcy discharge. A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged.
Forbes reports that the Trustee filed the revocation action because “the combined adversary actions resulted in no less than 52 different counts against Drumm, but they can mostly be distilled down to the common theme that Drumm intentionally hid his assets prior to filing for bankruptcy, and failed to disclose assets in his bankruptcy filings.” Intentionally hiding assets or not disclosing the transfer of assets will land you in hot water in bankruptcy court.
Drumm purportedly transferred millions of dollars worth of cash and property to his wife before before filing for bankruptcy. The Trustee not only can revoke the debtor’s discharge for such actions- but she/he can also sue the person it was transferred to in order to recover the property through the trustee’s avoidance powers. The American Bankruptcy Institute journal discussed this (here) over ten years ago, and it is still something I look to today.
The fact is- most people who are facing financial distress sell property in order to scale back their expenses or just simply to survive. The main thing a bankruptcy trustee will look for is 1. did you sell the property for fair market value and 2. who did you sell it to? Bankruptcy is designed to give people a fresh start. The U.S. Supreme Court was right when it stated that the purpose of bankruptcy is to give “the honest, but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.” Local Loan Co. v Hunt, 292 US 234 (1934).
Bankruptcy may be a tool for you to get your finances on track for a brighter future. Call me today for a free consultation. (801) 781-2026 or firstname.lastname@example.org