How to transfer assets before bankruptcy
People often want to transfer their assets before beginning a bankruptcy proceeding, so that they can protect certain of their most valuable assets from repossession or sale by the bankruptcy trustee.
However, most types of property transfers are frowned upon or outright illegal under bankruptcy law. They can lead your case to be dismissed at best, and at worst can leave you open to charges of fraud, perjury, or contempt of court. There are a few ways to safely transfer property and assets; however, they should be employed very cautiously, since the court will not look kindly on your case if there is the slightest suggestion of fraud or abuse of the court.
Decide when you need to file bankruptcy. According to federal bankruptcy law, you may not transfer any property, money, or other assets whatsoever within 30 days before declaring bankruptcy. You are also required to declare any transfers of property made within 24 months (under federal bankruptcy law--individual states may differ) before declaring bankruptcy, which means that the court can (and most likely will) research each property transfer to determine whether you made it in good faith. If you were insolvent when you made the transfer, became insolvent as a result of the transfer, or received significantly less in payment than the item was worth, then the court will likely deem it fraudulent and will not only credit the full value of the asset to you, but will not allow you subsequently to declare it in your bankruptcy proceeding. The courts may also choose to prosecute you for fraud if they feel that you have intentionally tried to abuse the bankruptcy system.
If you are outside the 30 day limit on property transfers, make the transfer of property. There are a few rules to follow in order to avoid being accused of abusing the court. In essence, you may not make gifts of large pieces of property while insolvent or nearly insolvent, and you should generally receive payment equal or nearly equal to the market value of the item. The bankruptcy court doesn't expect you to avoid selling any of your property for two years before declaring bankruptcy; selling valuable items such as cars or antiques is a step many debtors take in order to pay off some of their debts, and you may have to sell an item at slightly less than market value in order to move it quickly. But if you take huge losses on an item, the court may interpret it as an effort to hide your assets fro the court in order to appear more destitute than you really are.
Don't take repossession of the property under any circumstances. Your bankruptcy trustee will continue to monitor your financial situation even after you receive your discharge. If you repossess property which you claim to have sold in your bankruptcy papers, then you can retroactively be accused of abusing the court, and the judge can order that your debts are no longer discharged. You may also be subject to prosecution and fees associated with fraud.
You can continue to pay monthly bills, pay rent, and buy necessities such as groceries and fuel, without worrying about the courts accusing you of fraudulent transfers of assets.
Don't try to repay your creditors during your bankruptcy proceedings. Cutting a check to one of your creditors may be seen as preferential treatment, which is frowned upon by the courts. If your creditors are harassing you, go ahead and file for bankruptcy. The automatic stay will kick in as soon as the court receives and accepts your papers.