Can You Receive Gifts During Bankruptcy?

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Can You Receive Gifts During Bankruptcy?

Posted on: August 29th, 2016 by Michigan Bankruptcy Attorney Jeff Thav

Gifts in bankruptcy can be viewed by the Eastern District of Michigan Bankruptcy Court and Bankruptcy Trustees as simply that. Or they can be viewed as a fraudulent transfer that can be “voided” by a Chapter 7 bankruptcy trustee.

 

Gifts in Bankruptcy: Family-Members and Friends

A gift to a family-member, friend, or other personal acquaintance can be undone by a Chapter 7 Trustee in particular under 11 U.S.C. Section 548 regardless of whether the gift or transfer of a personal property or of cash was made with an intent to hinder, delay, or defraud creditors, which is the standard for the finding of a “fraudulent transfer” under Michigan State law . Sec. 548 of the Bankruptcy Code states that a transfer made within 2 years of the filing of a bankruptcy if the transfer was for “less than equivalent value” and while the filing person was legally “insolvent.”

Insolvency under Section 101(32)(A) of the Bankruptcy Code, simply put, is a “balance sheet” test which compares debts to assets at the time of the transfer. If the value of the debts outweigh the value of the assets owned by the person conducting the transfer, that person is legally insolvent. (Of course, it’s not so simple as that: all of these steps have been heavily litigated in the Bankruptcy Courts and will continue to be litigated.)

So, for example, if you title an automobile to your grandmother eight months before filing for bankruptcy and, at that time, you owed to creditors an amount of money greater than the value of everything you own (not including the value of the automobile in question), you are legally insolvent under the Bankruptcy Code. Because that transfer took place within two years of the filing of the Chapter 7, it is a “fraudulent transfer” under the definition of the Bankruptcy Code even if you didn’t at all intend to defraud creditors, the Bankruptcy Court, or anyone else and had no idea at the time of the transfer that you would be filing for bankruptcy eight months later.

In that example, such gifts in bankruptcy can be undone by the Chapter 7 Trustee. That is, the Trustee will sue your grandmother to get the car or the value of the car in order to liquidated it for the benefit of your creditors.

It is extremely important, therefore, that you disclose all such gifts and transfers to your bankruptcy attorney prior to filing a Chapter 7 bankruptcy.

If you must file bankruptcy immediately to stop a wage garnishment or collection lawsuit or foreclosure and such gifts or transferred have occurred, this can be a good reason to file a Chapter 13 bankruptcy. In Chapter 13 bankruptcy, assets are not liquidated, and Chapter 13 Trustees do not therefore pursue such “fraudulent transfers.”

 

Gifts in Bankruptcy: Charitable Giving

On the “good news” side of gifts in bankruptcy, there is an exception in place for certain charitable contributions. The Religious Liberty and Charitable Donation Protection Act of 1998 amended the Bankruptcy Code to protect contributions made to protected organizations. They must not have exceeded 15% of the debtor’s gross income the year they were made, and, if they were, must have been consistent with the debtor’s history of such giving. The 15% limit applies to each individual transfer, also, not the entire year’s worth of charitable contribution, even if it exceeds 15% in total (courts have ruled that no part is protected, however, if a total 15% is exceeded without any past giving history).

 

The Bottom-Line

The bottom-line is that you should not transfer any property to a friend, family-member, or anyone else if there is any chance that you may file for bankruptcy in the next several years without first seeking the advice of an experienced Michigan bankruptcy attorney. Michigan’s fraudulent transfer statute looks back 6 years, and a bankruptcy filed in the State of Michigan will rely on that time-period to make determinations regarding fraudulent transfer. Anything transferred in the 90 days prior to filing for any reason is subject to cruel scrutiny by a Chapter 7 Trustee.

But that does not mean that you should not seek counsel if you need relief from debt. You may have performed such a transfer unknowingly before realizing that you need the relief of the bankruptcy process. If such a situation has occurred and waiting to file your case is unavoidable due to garnishment, a lawsuit, foreclosure, or other issue that can be immediately halted by a bankruptcy filing, it may be that a Chapter 13 bankruptcy is the best course of action for you, rather than a Chapter 7. In a Chapter 13, no property is liquidated by the Trustee, so no transfer made will be avoided or undone by a Trustee, nor any friend or family-member sued or pursued by the Trustee.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact Attorney Jeffrey Thav.

Did You Recently Get Engaged? Read This!

Posted on: August 29th, 2016 by Michigan Bankruptcy Attorney Jeff Thav No Comments

Congratulations if you recently got engaged! Your big day will be an amazing time for you and your partner.

One of the best parts of being married is getting to share in each other’s lives completely. But, if one of you has significant debt, this isn’t something you want to share. It’s in both of your best interests to resolve the debt before you get married.

Money issues are marriage issues

Getting married represents a new chapter in your life together. You want to start it on a good note. It’s hard to move forward as a team when one partner is still caught up in issues from the past.

Starting married life together can be stressful, too, even if you lived together before. You don’t want to unnecessarily add to that burden. Studies show that money is the leading cause of relationship stress.

Addressing financial issues before you get married will help your relationship be stronger in the long run. This is especially true if the two of you have different habits or values when it comes to money.

Solving debt is harder once you’re married

For many people with significant debt, bankruptcy can be the best option. A successful bankruptcy discharges most debts and gives you a chance to start fresh.

Getting married, however, can make it more difficult to qualify for bankruptcy. In order to qualify for Chapter 7 bankruptcy, a person must pass an income-based “means test.” Your spouse’s income will count, and may make you ineligible, even if you would have been eligible before marriage.

You may still be able to file Chapter 13 bankruptcy, which does require the repayment of part of your debt. Again, your spouse’s income will likely count toward the repayment, making the situation less advantageous than if you had completed the bankruptcy before marriage.

Make a plan before the wedding

If you’re engaged, or even thinking about getting married someday, have a serious talk with your partner about financial issues. For the sake of your relationship, it is important that the two of you can talk openly and honestly about money, even when it is stressful.

If one or both of you has significant debt, seriously consider resolving the issue before you get married, even if it means delaying the wedding a little bit. If you think bankruptcy might be an option for you, schedule some time to talk to a bankruptcy attorney. Your lawyer will help you understand your options, and how the law will apply to your own personal situation.

 

Contact Attorney Jeff Thav in Michigan to discuss how personal bankruptcy and financial issues should be considered before getting married.

30150 Telegraph Rd. Suite 444
Bingham Farms, MI 48025
Tel: 248-220-1430
Fax: 248-282-0756
Jeff@ThavLaw.com

 

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