When you owe money to creditors and cannot afford to pay it back, these creditors can take action against you to collect. Prior to losing assets through a judgment, some debtors try to transfer assets to another party. In some cases, the court could find that a fraudulent transfer has occurred, which leads to consequences for the debtor.
This process involves transferring assets to a friend or family member prior to having a judgment issued against you. This way, creditors cannot collect on the assets since they are not in your possession at the time of the judgment. Then, after the judgment has been issued at some point in the future, you take possession of the property again. Your friend or family member transfers the property back to you, and you begin using it once again.
When a judgment is issued, the court issuing the judgment has the option of looking back over your recent transactions. In some cases, the court will look back over your records for the last year to make sure that you did not make any large payments to friends or family members in a short period of time. If you did make a transfer or payment during that time, the court can request that the friend or family member send the assets back to you so that they can be taken by creditors.
Some people filing for bankruptcy use transfers as a way to try to hide assets from the bankruptcy court. When you file for Chapter 7 bankruptcy, you must be willing to give up your property to repay creditors. By transferring assets to a family member prior to bankruptcy, you may try to avoid losing this property. If the bankruptcy court finds out about this transfer, the bankruptcy discharge could be disallowed, which means you will not get out of the debt you have.
If you find yourself in a position where a judgment is imminent, it is usually in your best interest to disclose all of the property that you have. This way, you avoid any complications with creditors and the court system. While you may lose some of your property, you will at least avoid being accused of fraud. In some extreme cases, you may even be prosecuted for fraud, which could lead to fines from the court or jail time.