A Chapter 7 case is a “liquidation” proceeding in which the Chapter 7 trustee is tasked with the administration of your case. The trustee’s job is to maximize the amount of property in the bankruptcy estate for the benefit of unsecured creditors. The bankruptcy estate is defined as all legal and equitable interest the debtor has as of the date of filing. The estate is subject to the control of the trustee, and the trustee has the ability to reach back and void certain transfers that were made prior to a debtor filing bankruptcy. A common scenario is when a debtor transfers title to a residence to his or her spouse or child shortly before filing. Some debtors will attempt to be clever and transfer a residence to a family trust a few months before filing. None of these techniques will work to exclude your residence from the grasp of the Trustee. Under Section 547 of the bankruptcy code, the Trustee may avoid any transfer of property to an insider (family member or business partner) made within one year of filing.
Think you can just wait a year and be safe? Think again. Under Section 548 of the bankruptcy code, the Trustee may reach back two years if he can prove that the transfer was made with the intent to hinder and defraud creditors. The aforementioned code sections are called Preference sections, and they were enacted to prevent the “preference” of the debtor to pay one creditor over the other. The entire bankruptcy system is designed to give the Debtor a fresh start and an equitable distribution to each unsecured creditor.