Consumer Bankruptcy:

Transferring Property to Family Members

It is very unlikely that you will be able to shelter property from bankruptcy by transferring it to members of your family. Any gifts or other transfers for inadequate consideration to anyone (family, friends, business associates etc) can be pursued and recovered by a Chapter 7 Trustee, up to a year before your filed for bankruptcy. If you have a creditor who would have the right to avoid a transfer, even partially, because of statutory or common law concerning fraudulent transfers, then the Chapter 7 trustee has the authority to avoid the entire transfer. Transferring money to family members, consequently, will not shelter it from bankruptcy, and is probably a legally problematic move.

An example will illustrate this: You owe a large sum of money to a wealthy uncle, because he helped pay for your much needed medical treatment. If you repay more than $600 of that debt, within the year before you file for bankruptcy, it could be recovered by the Chapter 7 trustee. This is because it is a “voidable preference.” That is, it is a preference that your uncle is able to recover more money that he would if he was one of your creditors and had to divide it accordingly. Small gifts are not voidable preferences (Small means that the total less than $200 in the past year).