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Do Not Transfer Your Property before Your Bankruptcy

I wanted to write an article on this topic because it is a common idea among potential clients when at our initial meeting.

Usually, it starts with a question, "Should I transfer __________ to my relative for free so that I don't lose it in the bankruptcy?" My answer to this is always no. Here is why:

First, you lose your right to exempt (and keep) property that is no longer owned by you. Exemptions are provided under California Law for specific categories of property that you get to keep even when you file bankruptcy to allow you to land on your feet and have something after coming out of bankruptcy. However, you can only exempt property that you own. Many times when someone asks me this question, they are asking it about property that can be fully exempted and protected in a bankruptcy proceeding. If it is the house you reside in, you can exempt between $75,000-$175,000 in equity. If it is a vehicle, you can regularly exempt the entire value of the vehicle. For example, if you aren't claiming a homestead exemption, you may be able to exempt a vehicle worth over $25,000 if you don't have much other property to protect.

Second, you jeopardize your right to receive a discharge in bankruptcy. The discharge is a legal excuse from having to repay debts. It is the main reason to file a bankruptcy case. Title 11 U.S.C. Section 727 provides in part that:

"The court shall grant the debtor a discharge, unless—

...

(2)the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—

(A) property of the debtor, within one year before the date of the filing of the petition"

When you transfer your property to put it beyon