My Bankruptcy Trustee Suing My Relatives?

Things my bankruptcy clients have said to me:  warning

“Don’t worry, I had a paid for car, but I gave it to my sister last month.”

“I put all five vehicles in my wife’s name.  The collection lawyer’s office

told me to do it.”

“I took some money out of my 401(k) to pay my parents

back what I owe them.”

“My accountant said to put all the property in my wife’s name, so my creditors could not get it.”

Let’s see, where do I start?


Everybody is an expert on the law.  Your neighbor, your brother’s ex-wife.

If you told them you had a leaky faucet, or a light that was blinking on and off, they would not tell you how to do the plumbing or be your own electrician.

But bankruptcy law?  Yeah, sure, they know all about it.

Last first:  the guy who deeded all his real estate from his his and his wife’s name, to her name, messed up.

In Michigan, property held by husband AND wife is already exempt from individual creditors of just the husband, or just the wife.  That is in or out of bankruptcy court.  Those assets were not exposed to his creditors BEFORE he transferred the property.

Now, there is something called the Uniform Fraudulent Transfer Act, or  UFTA, which most states have enacted.

It says, if you are insolvent before, or, as the result of, a transaction, that transfer, it is a fraud on your creditors.

Which can be set aside later, up to SIX YEARS LATER.


The transferee, the one you gave the property to, or even sold it for less than its value, gets sued by the creditor(s).

Or, if you file bankruptcy, the bankruptcy trustee has the right, under bankruptcy law, to bring that suit, under state law.

So your relative gets sued because you gave her your car.


I had my clients have their relatives transfer the vehicles back into my client’s name, which avoids the UFTA issue.

Another right the bankruptcy Trustee has is to sue an insider, as defined in the bankruptcy code, which includes relatives, who gets any repayment on a debt within a year of you filing bankruptcy.

So, the trustee could sue the relative who got the 401(k) money.

The policy is, when you do not have enough to pay everyone you owe, you do not get to pick and choose.

The bankruptcy law allows the trustee to go back up to one year before the case was filed, and recover, for the benefit of ALL creditors, any repayment you made to loans owing to relatives.

And lots of folks do just that, take their last few bucks BEFORE talking to a bankruptcy lawyer, and re-pay Mom.   Not realizing, they are just setting up Mom to be sued.



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