With bankruptcy looming, you're worried about your assets. You know that some of them can be liquidated to pay off your debt under Chapter 7. Because of your low income -- perhaps you lost a job through no fault of your own -- you know you're going to need to use Chapter 7 instead of Chapter 13.
So, to protect your assets, you start thinking about giving them to friends and family member. That way, you control far less when you file. You can liquidate what little you have left and then get your assets back after the filing is complete. Should you do it?
You should not. Legal experts note that you may actually wind up having a harder time protecting assets if you gave them away. This is not seen as a "reasonable" step by the courts, and it could make it look like you're trying to commit fraud. You're better off to learn about the legal exemptions that allow you to protect assets you still control.
The reason that this rule has been established is simple. If you were allowed to give things away, you could hide as many assets as you wanted. Imagine if someone with $5 million worth of cars and homes was simply allowed to transfer the property away, declare bankruptcy and then get it all back. That's clearly being done just to rip off the creditors, so the courts do not look favorably on it.
Before taking any action, no matter what friends and family members tell you to do, be sure you really understand the bankruptcy process and the potential ramifications.
Source: Bankrate, "What can creditors take in a bankruptcy?," Justin Harelik, accessed Nov. 08, 2017