If you were to file a Chapter 7 Bankruptcy and you had transferred an asset to anyone within two years prior to the time you filed the Chapter 7 Bankruptcy, you are going to run into Section 548 of the Bankruptcy Code and you will not like it.
Section 548 of the Bankruptcy Code allows a Chapter 7 trustee to avoid the transfer of debtor’s assets to anyone within the past two years prior to filing the Chapter 7 Bankruptcy if the transfer was made for less than fair market value. For example, suppose you transferred a 2014 Chevy Malibu to your college age son for nothing. The Malibu was worth 10k at the time of the transfer and it was a gift to son, son paid you no money for the Malibu.
If you file a Chapter 7 Bankruptcy within 2 years of transferring the Malibu to son, a Chapter 7 trustee will use Section 548 of the Bankruptcy Code to either sue son for the value of the vehicle or claw back the vehicle itself. The money Chapter 7 trustee obtains is then used to disburse to your creditors pro rata.
But, what happens to the transfer of the Malibu in a Chapter 13 Bankruptcy? The Chapter 13 trustee does not avoid the transfer. Instead, Chapter 13 trustee adds the value of the Malibu to the pile/hurdle debtor must pay back over the course of a Chapter 13 plan. This is pursuant to Section 1325(a)(4) of the Bankruptcy Code.
Occasionally, trustees can use state based claims to also pursue fraudulent transfers but those transfers typically can only be avoided when debtor had the intent to hinder, delay, and defraud her/his creditors. This is a much harder burden for trustee to prove.
When the time is right, or when you are ready, reach out to Minnesota’s LARGEST Chapter 7 and 13 bankruptcy website at www.kainscott.com. You will be so happy you did!
