3 Asset Moves You Shouldn't Make Right Before Filing Bankruptcy

Many debtors move assets such as cash and real estate in an attempt to protect them from creditors who may be threatening to file a lawsuit or seize their assets if they already have a judgment.  But moving assets right before filing bankruptcy may cause problems for the debtor.

Below are three types of asset moves debtors considering bankruptcy should avoid:

  1. Placing assets such as real estate and bank accounts into the names of friends and family members with the intention of keeping them away from creditors.  If a debtor transfers assets right before bankruptcy, the creditor or bankruptcy trustee could challenge the transfer and demand the return of the assets to the bankruptcy estate.
  2. Overpaying or prepaying certain creditors before filing for bankruptcy with the intention of keeping the money out of the hands of the bankruptcy trustee or creditors.  Some debtors make the mistake of paying out large amounts of money to family and friends in an effort to repay those debts right before filing bankruptcy, only to find that the bankruptcy trustee voids the payments or classifies them as preferential treatment. But there are cases when a prepayment might be allowed such as paying on a mortgage because if you don’t you will end up homeless.  Talk to your bankruptcy attorney before making any payments to certain creditors right before bankruptcy filing.
  3. Placing large amounts of cash into a retirement account right before filing bankruptcy can raise a red flag.  Many bankruptcy trustees will see the influx of cash into a retirement account right before a bankruptcy filing as a sign that the debtor is trying to avoid paying creditors and manipulate the bankruptcy system.  It is okay to make payments into a retirement account before filing bankruptcy if this is something that you normally do.  For example, the bankruptcy trustee is not going to void the transfer of a $600 monthly payment into a retirement account if the debtor has been making similar payments of the course of several years.