Can I Transfer Nonexempt Assets Before Filing for Bankruptcy?


During a Chapter 7 bankruptcy proceeding in New Jersey, your non-exempt assets will be liquidated (sold) in order to  repay the money that you owe creditors, thus wiping your debts clean and giving you the ability to start over financially. The bankruptcy system wants to get you out from under the burden of your debts so that you can continue to be a productive member of society. Thus, there are numerous assets that are protected from bankruptcy liquidation, and these assets allow you to keep living, working, and providing for your family.

Exempt vs Nonexempt Assets

Property that is exempt is property you will be able to keep. Your bankruptcy trustee won’t be able to liquidate items like: your home, vehicle, household furnishings (up to a certain monetary value), the value of life insurance policies, annuities, and retirement accounts.¹ Exemptions do vary by state and federal law, so verify your exemptions with your bankruptcy attorney.

Nonexempt assets are things that are not considered necessary to meet your basic living and working needs. Some examples of items that are usually considered nonexempt in bankruptcy include: expensive collectibles, additional vehicles, musical instruments (unless you are a professional musician), heirlooms, stock & bonds, and vacation homes.

You may be really attached to a nonexempt item, or perhaps you recognize its high monetary value. You might start thinking about ways to be able to ‘beat the system’ so that in the end, you’ll still have that coin collection. Maybe you could just “give” it to your brother for the duration of the bankruptcy, and then he’ll give it back to you after the smoke clears. No one would ever know, right?

During your bankruptcy proceedings, you’ll be asked if you recently transferred, gifted, or sold any property. Lying to the Bankruptcy Court is a very risky endeavor. Once you’ve been assigned a trustee, s/he will comb through all of your assets and actions over the past several years. Anything that seems even slightly suspicious will warrant further investigation. Your trustee has the right to question anyone to whom you may have sold, gifted, or transferred nonexempt property.

Let’s say your mom lent you $10,000 five years ago to help out with a down-payment on your home – with the condition that you would repay her as soon as possible. Nine months ago, when your aunt passed away, you received an inheritance check, and were finally able to pay back your mom, just like you promised.

Neither transferring nonexempt property (like the coin collection) in order to hide it from creditors, nor paying “insiders” before other creditors is permitted under bankruptcy law. Both are considered fraudulent actions. Your trustee has a “look back” period of one full year for transactions that may have occurred between you and family members or friends (“insiders”). [11 U.S.C. § 101(31)]. Any payments to insiders that took place in the year prior to filing your bankruptcy complaint are considered preference payments. These types of payments are prohibited, and will most likely be reversed so that all of your creditors get equal parts of your assets.

If you are considering filing for bankruptcy and have made a payment to someone who is considered an insider under bankruptcy law, be sure to disclose this to your bankruptcy attorney. He may recommend waiting to file until the payment you made no longer falls within the “look back” time frame. He will also advise you against hiding assets from your creditors. Since bankruptcy law is complex and varies on a case by case basis, it’s best to contact a certified New Jersey bankruptcy lawyer as soon as possible.



 Image credit: Daniel O’Neil

6 Responses to Can I Transfer Nonexempt Assets Before Filing for Bankruptcy?

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