You have learned that you may have too much property to file for Chapter 7 bankruptcy. Your spouse does not have very much debt, and you are the only one who needs to file for bankruptcy. Why not simply sell what you own and buy something in your spouse’s name only? Or, even better, can you simply transfer your property into your spouse’s name? That will fix the problem and allow you to file for bankruptcy, right?
This thought process is completely incorrect. You can virtually never transfer property to your spouse’s name and then file for bankruptcy. You will still lose your property the same way as before the transfer occurred.
If you transfer property to your spouse in any way, this transfer can be “reversed” during your bankruptcy case. This can even happen with more “creative” transfer-type situations. In fact, it can even happen where you do not realize you are making a “transfer” at all.
The most obvious example is a large item being transferred, such as a house, car, or a large financial account in order to file Chapter 7 bankruptcy. A simple transfer can be reversed in a bankruptcy case even up to 2 to 4 years after the transfer took place. Rarely, a judge could even reverse a transfer beyond 4 years has passed if the transfer was obviously done to evade creditors. Such a ‘reversal’ means that the Trustee in your case can go after the asset just the same as if it were still in your name.
Generally, you should wait 4 years to be safe after a large transfer. But, this is an extremely complex topic that must be addressed by a bankruptcy attorney. Other times, when multiple parties or an elderly person is involved, you should also consult an estate attorney. This is usually not a simple subject and must be addressed through multiple angles. Property can potentially be lost in numerous unexpected directions if large, quick transfers are made without consulting an attorney.
Less obvious transfers also can be reversed. Sometimes a couple will sell or liquidate a jointly-owned asset such as a house or financial account. Then, they will purchase another house or financial account only in the non-filing spouse’s name. This is still considered a transfer and can be reversed in many cases. It does not matter if you did it on purpose – it can still be reversed. Sometimes couples even make mistakes like this by accident. They even do it sometimes after being clearly instructed to not transfer property by their bankruptcy attorney.
An even less obvious transfer can be using joint funds to improve an asset that is only in the non-filing spouse’s name. For instance, if a couple receives $20,000 in joint funds and then immediately fixes up the house in the non-filing spouse’s name, then this could be considered a transfer. Even less obvious, would be if the couple only paid off one spouse’s debts and then the other spouse filed bankruptcy. These non-ordinary “transfers” can be done unknowingly by a bankruptcy filer. It may not even show up on the bankruptcy questions required by the court. But, in rare cases, these “transfers” can create asset situations in Chapter 7 bankruptcy. You may then be required to pay back either a part (or even all) of the money to your creditors even after you filed for bankruptcy.
For answers to more bankruptcy questions, make sure to check out more of our Indianapolis Bankruptcy Blogs.