The bankruptcy petition includes a series of questions about recent financial history called the Statement of Financial Affairs. 11 USC 521
One question asks about transfers you’ve made outside the ordinary course in the past two years. BE VERY CAREFUL!
Consider the Bankruptcy Code’s definition of transfer 11 USC 101(54):
(54) The term “transfer” means—
(A) the creation of a lien;
(B) the retention of title as a security interest;
(C) the foreclosure of a debtor’s equity of redemption; or
(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with
(i) property; or
(ii) an interest in property.
Take another look at subsection D: each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing or parting with an interest in property. If in doubt, call your lawyer. Getting this right, and complete, is important for a couple of reasons.
Some of these transfers may be avoidable by the trustee. If you signed your car over to your brother, the trustee may sue your brother to get it back. And when he gets it back, it belongs to the bankruptcy estate and your creditors, not you or your brother. Ouch!
If your bank account was levied, perhaps you can get the money back. But there’s a general principal in bankruptcy
law that you can’t benefit from any asset that you didn’t list in your paperwork. Fail to see that levy as a transfer, and you may lose the right to recover the money.
Transfers: let me count the ways
Here’s a list of events that are transfers in the bankruptcy context:
/ GiftsCreating a lien to secure a debt
Changing the way title is held
Settling a dispute and giving up legal rights
Trading in a car
Giving used stuff to Goodwill
Selling a house, car, or stock
Experiencing a levy, garnishment, or judicial sale
The list isn’t complete. But it should get you started thinking about ways in which your property rights and your legal rights may have changed in the past two years.
Essential for bankruptcy planning
Many of these transfers, while important for disclosure, 11 USC 527 will have no impact on your life or the lives of those around you, in your bankruptcy.
Others may invite the trustee to sue the transferee (your friend, brother, sister, etc).
Worse, intentional or reckless failure to disclose could result in your not getting a discharge in bankruptcy. 11 USC 727.
Take some time, in preparing your bankruptcy papers, to find the transfers in your financial life and discuss them with your lawyer.
The failure to understand and disclose transfers is one of the most frequent, and most destructive, mistakes that people filing bankruptcy without a lawyer make.
Bankruptcy Law Network, LLC, 6502 S. 6th Street, Klamath Falls, OR 97603,