Bankruptcy Law CenterIn a recent decision by the 9th Circuit Court of Appeals, an important aspect of bankruptcy law was decided. The appeals court rejected a harsh reading of the bankruptcy rules of procedure and allowed a property transfer to be voided because of the circumstances surrounding that transfer.

This case began in the financial troubles stemming from the 2008 recession. An investor with several properties consulted with a bankruptcy attorney about how to resolve his financial difficulties and came to the conclusion that he would transfer some of his property to his wife prior to filing for bankruptcy.

State Law Exemptions to Bankruptcy

In an effort to protect his assets, he transferred all his interests in two properties to himself and his wife into a tenancy-by-the-entirety. This type of tenancy allows a couple to jointly own a property and gives the spouse the right of survivorship should one spouse die. It also protects the property from creditors of just one spouse.

With the new tenancy in hand, the man filed for bankruptcy. Anytime a person files for bankruptcy. He or she has to disclose all assets, debts, and recent transfers in paperwork so the trustee can ensure that there were no fraudulent or questionable transfers. For some of those transactions, bankruptcy law rules require the trustee in a case to object within 30 days, or lose the right to the property in question.

Court Defines Objection

In this case, even though the trustee did not object in a typical way to the transfer of the man’s property, he did complain to the bankruptcy court about the transfers. The court held that this notice and complaint was enough to satisfy the bankruptcy rule, and overturned the transfers of the man’s property to his wife.

This case is a good example for those seeking to file bankruptcy in the near future. Bankruptcy can be a wonderful tool to help people get out of debt, restructure their finances, and have a new lease on life. Anytime a debtor tries to use the bankruptcy laws to hide money, or get away with a fraudulent transaction, it can backfire.

The bankruptcy process includes three important parties. The debtor, a trustee (representing the assets and creditors), and the judge. Throughout the process, all of the debtor’s assets, income, debts, and other financial information is going to become part of the record, and trying to hide or defraud in any way will end up hurting the debtor.

Not only could the specific assets be lost that were being hidden, but the entire bankruptcy petition could be thrown out, and the debtor barred from filing for bankruptcy. This is a harsh reality that anyone contemplating a bankruptcy should think about before going through the process.

Your California Bankruptcy Professionals

The good news is that you do not have to go it alone. At The Bankruptcy Law Center we have for years been helping people restructure their financial lives and find relief through the bankruptcy laws. Contact us today.

(image courtesy of Patrick Perkins)