What is a Preferential Bankruptcy Transfer?

Bankruptcy is intended to give people who are truly having trouble paying their debits a fresh start.  When a debtor files bankruptcy, the bankruptcy court will consider the debtor’s assets and income compared to the level of debt when determining whether the debtor qualifies for bankruptcy relief.  Debtors who commit bankruptcy fraud by transferring property before filing bankruptcy may face significant penalties.

What is a Preferential Bankruptcy Transfer?

A preferential bankruptcy transfer occurs when a debtor is transferring property before filing bankruptcy.  The debtor intends to lower his amount of assets by gifting or selling property for a low price to friends, family or others. 

When this occurs, the court may find that a voidable transfer has occurred and order the value of the assets transferred to be considered as assets of the debtor for bankruptcy purposes.  The Court may consider any transfer made within 90 days of filing for bankruptcy to be a voidable transfer.  Additionally, if the transfer was made to relatives or others close to the debtor then the Court may consider property that was transferred within one year of filing bankruptcy.

Defenses to Preferential Bankruptcy Transfer Allegations

The burden of proving that a preferential bankruptcy transfer occurred and that bankruptcy fraud was committed is on the bankruptcy trustee.  If the bankruptcy trustee has evidence that a preferential transfer occurred then you may be able to defend yourself by asserting that:

• The transfer happened in the ordinary course of business;
• You received fair market value for the transfer; or
• You transferred the property to settle a tax lien, alimony or child support obligation.

Penalties for Preferential Bankruptcy Transfers

If you do not list assets transferred within the past year on your bankruptcy petition then you may be liable for perjury in bankruptcy.  Perjury in bankruptcy is a serious matter and may prevent you from getting the bankruptcy discharge that you seek.  It can also lead to perjury charges being brought against you in state court.  Penalties for perjury can include fines and jail time.

Get Real Legal Advice

A bankruptcy attorney can help you defend yourself against allegation of preferential bankruptcy transfers and make sure that all of your rights are protected.  A bankruptcy lawyer can also represent a creditor who believes that a preferential transfer occurred and who seeks justice from the bankruptcy court.