Hiding Property & Assets in Bankruptcy

Giving away, hiding, or destroying property prior to filing for bankruptcy can land you in trouble.

Updated by , Attorney · University of the Pacific McGeorge School of Law

If you transfer assets out of your name to hide them from creditors or the trustee appointed to your case, you would be committing bankruptcy fraud. Depending on the circumstances of the transfer, the trustee may have grounds to:

  • avoid the transfer and get the property back to distribute it among your creditors
  • ask the court to deny your discharge altogether, and
  • refer your case for criminal investigation and prosecution.

To learn more about what you can and can't do when planning for bankruptcy, see Prebankruptcy Planning.

Property You Can't Protect in Chapter 7 and 13

You don't lose everything you own when you file for bankruptcy. Each state decides the type and value of assets you'll need to maintain a home and employment and lists it in the state's exemption laws. If your property is exempt, you can keep it.

So what happens to nonexempt property—the property you can't protect with an exemption? It depends on the bankruptcy chapter you file.

Nonexempt Property in Chapter 7 Bankruptcy

If you file for Chapter 7 bankruptcy, the bankruptcy trustee assigned to your case has the power to take nonexempt property that you can't protect with an exemption, and sell it to pay back your creditors.

Nonexempt Property in Chapter 13 Bankruptcy

You can keep all of your property in Chapter 13 However, you must pay your creditors the value of your nonexempt property, minus sales costs, over the course of your repayment plan.

Regardless of the chapter you file, you might be tempted to give away, hide, or sell some of your property for less than what it's worth before filing your case. But this is always a bad idea.

Fraudulent Transfers Can Result in Denial of Your Discharge

If you hide, give away, or destroy property with the intent to defraud your creditors within one year of your bankruptcy filing date, the court has grounds to deny your bankruptcy discharge—the order that erases qualifying debt. If the court denies your discharge, you will remain on the hook and responsible for paying back all debts that could have been wiped out in your bankruptcy. As a result, giving away your assets to hide them from your creditors is never a good idea.

The Bankruptcy Trustee Can Get the Property Back

In addition to risking your discharge, the bankruptcy trustee can typically reverse, or avoid, the recent property transfers and get the asset back for the benefit of your creditors. If you transfer property out of your name within two years prior to filing for bankruptcy (or within the time allowed by your state for setting aside a fraudulent transfer), the trustee can avoid (undo) the transfer if you:

  • gave away or transferred the property with the intent to delay, hinder, or defraud creditors (actual fraud), or
  • gave away or transferred the property for less than its reasonable value while you were insolvent or intended to take out more debt than you could afford to pay back (constructive fraud).

This means that giving away your property before filing for bankruptcy will usually not keep it from your creditors. But keep in mind that if the asset had no equity or if it was exempt, the trustee will likely not seek to avoid the transfer.

For more information, see Bankruptcy Clawbacks of Preferential & Fraudulent Transfers.

Committing Bankruptcy Fraud Can Lead to Criminal Prosecution

If you give away your property with the intent to conceal it from your creditors or the bankruptcy trustee, you could be prosecuted criminally. Bankruptcy fraud is a federal offense that can result in hefty fines or land you in prison. If the bankruptcy trustee suspects fraud in your bankruptcy, he or she can refer your case for criminal investigation. The penalties include a fine of up to $250,000, twenty years in prison, or both.

Review Your Bankruptcy Exemptions Carefully

Many debtors mistakenly believe that they will lose all of their property if they file for Chapter 7 bankruptcy. However, the majority of Chapter 7 bankruptcies are "no-asset" cases where debtors get to keep all of their property. The amount of property you can keep in Chapter 7 bankruptcy, or protect in Chapter 13 without paying for it, depends on the exemption laws of your state.

To learn more, see Bankruptcy Exemptions.

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