A lot of people think that they can pull one over on the law by transferring properties before filing for bankruptcy. Their purpose is to hide these assets so that they cannot be liquidated and will be out of reach from the trustee, and thus the creditors. The problem with that approach is that you are also committing an illegal act and can be the subject of a lawsuit as a result of these actions.
Both Federal and Florida laws state that the trustee has the authority to bring an action that stops the elimination or discharge of debts or to avoid transfers that happened before the filing of bankruptcy. The trustee can avoid transfers of debts within two years under 11 U.S.C. §548, or four years based on Florida state laws. The trustee can then sue the person you transferred the property to in order to “claw back” the property into the bankruptcy estate. This means that you are not the only one getting in legal trouble; the people or organization where the asset was transferred can be held liable too.
A lack of intent to commit fraud is also not an excuse to get you off the hook. There are two types of fraudulent transfers in bankruptcy, which are:
Actual Fraud or Fraud-in-Fact
This type of fraudulent transfer requires clear and convincing evidence of intent from the trustee or whoever is challenging the transfer of assets or properties. Establishing intent in a fraudulent case might be tricky but it can be done. The most common example of actual fraud is the act of transferring properties or assets to a newly formed company or to a family member with the intent to avoid the reach of creditors or to avoid the threat of litigation unless the property is transferred. This shows that even involuntary transfer can still be made with intent.
Constructive Fraud
While intent is not needed, proving a constructive fraud case only requires two conditions. The first condition is fair consideration or reasonable equivalent value. This refers to the fair value that a reasonable seller would have gotten for the property in question under a reasonable commercial method. If the transfer did not meet the parameters for what is considered fair consideration, then there may be a case of fraud.
The second condition is insolvency. Insolvency means that the total of the person’s debts is more than the total of the same person’s assets at fair value. If the transfer left the person who made the transfer insolvent, then there may be a case of fraud.
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As in the case of Jackson v. Jackson, even if there was no intent to defraud the mere fact that the debtor did not receive value for the transfer and it left the debtor with very little capital to continue operations of his business, it is already considered fraudulent under the bankruptcy law.
If you plan to file for bankruptcy but plan to hide some assets like cars, cash and other properties to avoid creditor attachment, you should know by now that not only will it not work, it may also lead to a costly litigation that will leave your with even fewer assets in the long run. What you should do is consult an expert bankruptcy lawyer who cannot only guide you in what you can and cannot do, but can also debunk the myths about bankruptcy that can lead you to further ruin.