• CONTACT US TODAY

  • Name*
  • Email*
  • Phone
  • Subject
  • Message
  • Phone
    This field is for validation purposes and should be left unchanged.

• Links

  • Testimonials - see what our clients have to say about us
  • Colorado Personal Bankruptcy Laws
  • Colorado Chapter 7 Bankruptcy
  • Denver Colorado Bankruptcy Court
  • Colorado Bankruptcy Law Questions
  • Bankruptcy is not a four letter word. DEBT is.
• 
  
  
  
  
  
  
  
  

Giving Away Property Prior to Bankruptcy: You’re Buying Trouble

If you’re struggling to pay your debt and your creditors are closing in on you, you may be tempted to give money or property to friends or family in hopes of keeping it away from your creditors. As a bankruptcy lawyer, I have some words of advice for you: DON’T DO IT! These transactions are generally considered fraudulent both in and out of bankruptcy court. Worse, these moves can taint your entire case, enticing judges to throw the book at you!!

WHAT CONSTITUTES FRAUD?

Bankruptcy law defines a fraudulent transfer as one which was done within the two years before filing bankruptcy AND was done with intent to hinder, delay or defraud any creditor. Bankruptcy law also yields to State law for fraud. In Colorado, where I practice bankruptcy law, this means they can look back four years on transfers of money or property.

THE TEN BADGES OF FRAUD

Of course, like many legal descriptions, this one begs another question – What does intent to hinder, delay or defraud mean? Well, since people almost never admit to defrauding their creditors, the courts generally look to 10 badges of fraud to determine intent.

While interpretation of these badges can vary, there is precedent which says that more than one may have to exist to establish fraudulent intent. They are:

1.    ‘Special equity’ – if you sell the property out from under a creditor’s interest, such as a security interest, this can be fraud.

2.    Special relationship – if you and the buyer or recipient of your gift are family, friends, or close business associates, you’ve taken a step toward committing fraud.

3.    Maintaining possession – if you had the great idea to sell property to your roommate who will still let you use it, you’ll likely find out this wasn’t such a great idea.

4.    Pattern of ‘sharp’ dealing – if you’ve engaged in a series of moves to keep property away from creditors, your sharp dealing may be deemed not-so-sharp. In this case, more is less.

5.    Transfer made you insolvent – if the transfer or gift leaves you unable to pay your debts, fraud can be found to exist.

6.    Transfer after judgment – if you decide to start getting rid of assets after a creditor sues you and gets a judgment against you, your procrastination can be ruled fraudulent.

7.   Less than fair value – if you decide to give the buyer a sweet deal on your property by selling it for less than it’s worth, well duh!

8.    Concealing transfer – this is the worst thing you can do. Worried about your debt, now you get to worry about criminal charges. Please, please, please – tell the truth.

9.    Use of credit – did you use credit to purchase exempt property? If so, you may have committed fraud.

10.    Total value of assets transferred – bigger is not better when the question is whether you committed fraud.

WHAT IT MEANS?

If a court finds you’ve committed fraud, you’re at the mercy of a judge. In bankruptcy court, the potential consequences of a finding of fraud can be as light as a ruling that a particular debt is not dischargeable to a ruling that none of your debts are dischargeable or that your case is dismissed. In extreme cases, you can even face criminal charges.

WHAT TO DO IF YOU’RE CONSIDERING A POTENTIALLY FRAUDULENT TRANSACTION?

If you’re unable to pay your bills and you have property you’re worried about losing – run, do not walk, to a bankruptcy attorney. I believe the most valuable function of a bankruptcy attorney is to help people keep their property. If the property turns out to be exempt, you can keep the property you’re worried about losing.

Believe it or not, I have encountered a client who fraudulently transferred property (by giving it to his mother) he would have kept through bankruptcy. Don’t let that be you!!

If the property is not exempt and you can’t keep it, you may be able to keep the value by legally selling the property before bankruptcy and putting the proceeds into other, exempt property. As you might imagine, this is risky business and should be done under the advice of counsel.

WHAT TO DO IF YOU’VE ALREADY COMMITTED A POTENTIALLY FRAUDULENT TRANSACTION?

If you’ve already violated one or more of the badges of fraud, my advice is the same. Go chat with an attorney immediately! The determination of fraud is very detailed, and there are often things which can be done to help mitigate any of the damage you’ve done by acting without the advice of a lawyer.

Lots and lots of people throughout history have struggled to pay debts, and lots of them tried tricks to keep their property away from creditors. Whatever ideas you’ve got have been tried before. Courts have seen it and ruled on it. This is an area of expertise amongst bankruptcy lawyers. Whether you have property you are worried about losing or you have already disposed of some property in way which may be deemed fraudulent, the best thing you can do is seek the advice of someone with this expertise. You will likely find you have a surprising amount of options for what you can do.