For New Yorkers thinking about a bankruptcy filing, it’s tempting. You have a very valuable asset, perhaps some land or art or a car, and you don’t want to risk losing it to creditors. So you give it away to your brother, a friend, one of your children.
Is this kosher under the bankruptcy laws?
No, this is not okay. And attempting to transfer assets to someone for the specific purpose of trying to avoid losing it in bankruptcy is a violation of the bankruptcy laws known as “fraudulent conveyance.” The bankruptcy law prohibits any actions with “an intent to hinder, delay or defraud creditors,” and doing so is considered grounds for denying a discharge.
Also, under federal bankruptcy law trustees can undo transfers made within two years of filing, and under New York law trustees can do so within six years of filing. As a result, a debtor can end up with what I call a “double no”–no discharge and no property.
If you’re feeling confused and not sure whether you can transfer something, ask yourself whether you’re giving it away (or selling it for a low price) in the hopes that creditors won’t be able to get it. If you can’t answer “no” with a straight face, then you most likely should not make the transfer.
Additionally, if you’re working with an experienced New York bankruptcy attorney, they may be able to help you figure out how to keep the asset. There are exemptions for cars and arts and you can even get a”wildcard” exemption. Of course, these are things that you need to discuss with your bankruptcy attorney. So before you make a move, find an attorney you trust and have a frank and open chat about your situation. Ask all the questions that need to be asked. And you may be surprised.
The bankruptcy laws were put in place to help debtors, and a good New York bankruptcy lawyer knows how to ensure that debtors get the maximum protection afforded to them by the bankruptcy laws.