Transferring Assets Before Bankruptcy

Many Canadians wonder if they can transfer assets before filing for bankruptcy to avoid losing them. Moving property just before bankruptcy may have legal risks. This blog explains what happens when you transfer assets, how trustees check these moves, and the consequences you could face.

Learn the right steps now to protect your financial future.

Key Takeaways

Transferring assets within two years before bankruptcy in Canada must be disclosed on your Statement of Financial Affairs (SOFA); trustees can reverse unfair transfers to protect creditors.
Giving gifts, selling property below market value, or moving items to family and friends right before bankruptcy is risky; these actions can get flagged as fraud and may lead to fines, penalties, or reversal by a trustee.
Trustees check all asset transfers during the two-year look-back period, but for self-settled trusts they may review up to ten years back; selling a car worth $20,000 for only $5,000 is a typical example of suspected fraud.
If you hide asset transfers or fail to report them fully, you may lose your discharge from bankruptcy and face criminal charges—Canadian law takes these actions very seriously.
Always speak with a licensed insolvency trustee or bankruptcy lawyer before transferring any assets; keeping honest records and getting legal advice helps protect you from mistakes.

What Does It Mean to Transfer Assets Before Bankruptcy?

Transferring assets before bankruptcy means moving your property, money, or belongings to someone else right before filing for bankruptcy. People sometimes give a car title to a family member or sell their house below market value.

Some hope this helps them avoid bankruptcy by keeping their assets away from creditors.

Canadian law requires full disclosure of any asset transfers in the Statement of Financial Affairs (SOFA). If you move assets within two years before filing for bankruptcy, the trustee can take action to recover them.

These actions prevent people from hiding what they own just to avoid paying debts. Failure to disclose could lead to losing your bankruptcy discharge and facing legal penalties.

Is Transferring Assets Before Bankruptcy Legal?

After learning what it means to move assets before bankruptcy, Canadians often wonder about the legal side. Canadian law does allow you to transfer property or other assets before filing for bankruptcy.

But this is only legal if the move is not meant to cheat your creditors or give special treatment to one over another. For example, selling a car at its real market value is usually fine if you need money for living costs.

If you sell that car much lower than its value just so a friend benefits instead of creditors, this can be seen as fraud.

Courts and trustees look closely at these moves within two years before someone files for bankruptcy. Signs of trouble include selling below market rates or transferring items with plans to hide them from debts owed.

Under the “Clawback Provision,” a trustee can take back any property that was moved improperly during this time frame. Preferential transfers made within 90 days before bankruptcy may also get canceled by the trustee; they protect all creditors equally and stop unfair dealings.

Always seek help from a qualified lawyer or trustee in Canada so you follow every rule when making asset changes ahead of filing for bankruptcy.

Common Ways People Transfer Assets Before Bankruptcy

Many people try to move their assets in different ways before filing for bankruptcy, so keep reading to learn what these methods are.

How Do People Gift Assets to Family or Friends?

People sometimes give assets to family or friends before filing for bankruptcy in Canada. These gifts can raise legal concerns and must be reported.

Gifts given within two years before filing for bankruptcy must appear in bankruptcy paperwork.
Transferring cash, jewelry, cars, or property to loved ones is common.
Even small valuables count if they are worth more than negligible amounts.
Trustees check all records of personal gifts made in the past two years.
Asset transfers up to five years back may lead to investigations in some cases.
Giving away a valuable asset for free or below market value can signal fraud.
Both the person who files for bankruptcy and the gift’s recipient could face consequences if the transfer seems dishonest.
Bankruptcy trustees will scrutinize transfers to family members or other insiders closely.
If a fraudulent transfer is found, a trustee may reclaim the gift from the recipient or ask them to settle with the estate.
Failing to report these gifts could result in legal penalties and delay discharge from bankruptcy.

What Is Selling Assets Below Market Value?

Selling assets below market value means selling something for much less than its real worth. For example, someone may sell a car worth $20,000 for only $5,000 before filing bankruptcy.

Canadian law sees this as unfair to creditors. The trustee can check these sales closely. If an asset is sold below fair market value while the person is insolvent, it counts as constructive fraud.

The bankruptcy trustee has the right to reverse such deals. The buyer might have to give back the asset or pay the difference between what was paid and its true value to help pay off debts.

You must disclose all property sales during bankruptcy, including details about the buyer and price.

Selling valuable property at a discount before bankruptcy could cause legal trouble; trustees might undo these sales and get funds back for creditors.

How Does Transferring Property Ownership Work?

To transfer property ownership before bankruptcy in Canada, you must complete legal documents such as a deed or sale contract. You need to report all transfers on your bankruptcy paperwork, including the Statement of Financial Affairs.

The trustee examines each property transfer made in the two years before filing. Transfers at low value or to family often get closer review for signs of fraud.

You must keep full records of every property change, like signed deeds or receipts. If you sell below market value or give assets away, the trustee may reverse it if found fraudulent.

Transferring non-exempt property can also lead to recovery by the trustee, especially during the look-back period. Always use clear paperwork and provide full details to avoid problems later.

What Are the Consequences of Transferring Assets Before Bankruptcy?

Moving assets before bankruptcy can lead to serious trouble. Courts may undo these actions and charge people with fraud.

How Are Fraudulent Transfer Investigations Conducted?

Trustees review all financial transactions before bankruptcy is filed. They focus on transfers made within the two-year look-back period, but in some cases, they can check back up to ten years.

Transactions involving self-settled trusts face this longer time frame. Trustees search for signs of actual fraud or constructive fraud.

Bank statements, property records, and sales documents help trustees find suspicious transfers. If assets were sold below market value or given as gifts to family or friends right before bankruptcy, these may be flagged.

The trustee can undo fraudulent transfers and recover those assets for creditors. In cases of actual fraud, criminal charges could follow along with fines or penalties.

When Can a Trustee Reverse Asset Transfers?

A trustee can reverse asset transfers if you gave away or sold property for less than its fair market value before filing for bankruptcy. This often happens with gifts to family or friends, or when assets go to someone close like a business partner.

The trustee looks at transactions within a specific “look-back” period, usually up to five years in Canada.

If you transfer assets after creditors take legal action or send a demand letter, the trustee may also step in. These actions help protect creditors’ rights and make the process fair.

The person who received your property may need to return it or pay back its value. This rule helps ensure all creditors get treated equally during bankruptcy.

What Legal Penalties or Fines Could Apply?

Fraudulent asset transfers before filing for bankruptcy can trigger harsh legal penalties. Criminal charges under 18 U.S.C. § 152 may lead to fines and up to five years in prison if the court finds intent to deceive creditors.

Non-disclosure of transfers, or hiding assets, often results in losing the right to have unsecured debts erased through bankruptcy.

Civil penalties include forcing you or those who received your property to repay funds or return assets. The court may reverse any transfer made within two years before the bankruptcy if it sees fraud as defined by the Bankruptcy Code (11 U.S.C.

§ 548). Trustees may file lawsuits against both you and anyone who received improperly transferred assets. Actual fraud might also bring extra criminal charges or contempt of court proceedings.

Trustees review each case closely when investigating fraudulent transfers.

How Do Trustees Review Asset Transfers?

Trustees look at past asset transfers to see if they broke any rules. They use special methods to check for hidden or improper moves.

What Is Actual Fraud vs. Constructive Fraud?

Actual fraud happens when someone tries to cheat creditors on purpose within one year before filing for bankruptcy. This can include hiding property, lying about their assets, or moving things around to keep them from being used to pay debts.

These actions can lead to denial of discharge, dismissal of the case, or even criminal charges like fraud and perjury.

Constructive fraud does not need intent. It occurs if you transfer an asset while insolvent and do not get enough value in return. For example, selling a $9,000 car for only $5,000 while unable to pay your bills is constructive fraud.

Canadian law presumes you are insolvent in the 90 days before filing for bankruptcy. If such transfers happen during this period without fair compensation, they can be reversed by the trustee and may result in financial penalties.

What Are the Timeframes for Reviewing Transfers?

Trustees in Canadian bankruptcy cases use specific timeframes for reviewing asset transfers. The table below shows common look-back periods, situations, and examples.

Situation	Timeframe	Key Points	Example
General Transfer Review	2 years before filing	Trustees check asset transfers during this period. All must be listed on bankruptcy forms.	Gifted $10,000 to a friend 18 months before filing.
Self-Settled Trust Transfers	Up to 10 years before filing	Longer review for transfers to trusts where filer is beneficiary. Trustee may reverse suspicious transfers.	Moved property to a trust 8 years before bankruptcy.
Transfers to Insiders	Longer than 2 years; varies by province	“Insiders” include family or related business partners. Provincial law may extend look-back period.	Sold car to brother 3 years before filing.
Preferential Transfers to Creditors	90 days before filing	Trustees may void payments favoring one creditor over others within this period.	Paid $5,000 credit card bill 2 months before filing.
Transfers After Legal Action	After lawsuit or demand letter from creditor	Transfers made after receiving written demand or facing legal action face high scrutiny.	Signed over cottage to cousin after receiving lawsuit notice from a bank.
Older Transfers	More than 1 year before filing	Generally not considered fraudulent unless under special circumstances or involving trusts or insiders.	Sold jewelry 2 years before filing, no further review if no fraud suspected.

How Can You Avoid Problems When Transferring Assets?

Careful planning can help you stay out of trouble when moving assets. Honest actions and clear records keep your bankruptcy process safe.

Why Should You Consult a Bankruptcy Attorney or Trustee?

Consulting a bankruptcy attorney or trustee gives clear advice about Canadian bankruptcy laws. It can help you avoid legal trouble with asset transfers.

A bankruptcy attorney explains if transferring property before filing is allowed by law in Canada.
Lawyers give guidance based on your own finances and the type of property being transferred.
Many attorneys in Canada offer free consultations to people worried about moving assets before bankruptcy.
Trustees and lawyers check if any transfer could break rules in the Bankruptcy and Insolvency Act.
Detailed records, like sales receipts or gift documents, must be kept. Attorneys show how to keep these records for two years before filing.
Legal advice protects against the reversal of transfers. This means a trustee could take back your property if rules were not followed.
Failing to talk to an attorney may lead to fraud claims, fines, or criminal charges if transfers are found suspicious during review.
Professionals know what forms you need. They make sure all details about recent transfers appear on your bankruptcy paperwork.
You get support with every question about asset value, timing, or who received your assets before filing for bankruptcy in Canada.

How Should You Disclose All Transfers Accurately?

After you talk with a bankruptcy attorney or trustee, it is key to report every asset transfer the right way. Canadians must follow clear rules to avoid denial or cancellation of their bankruptcy petition.

Fill out the Statement of Financial Affairs (SOFA) form in your bankruptcy filing.
Report all asset transfers made in the two years before your bankruptcy filing, including gifts and sales to friends or family.
Exclude transfers made during regular business activity, as these do not need disclosure.
List each asset transfer, even if it was not meant to hide assets or commit fraud.
Give full details such as date, type of asset, name of the person who got the asset, reason for the transfer, and amount received.
Provide all documents for each transaction. These could include contracts, payment receipts, bills of sale, or bank statements.
Bring all documentation about recent transfers to your meeting with creditors for review.
Give this information first to your bankruptcy attorney so they can check it and add more details if needed.
Make sure nothing is left out because missing information can lead to denial or even cancellation of your case.
Keep copies of everything you submit in case there are questions later from the trustee or court.

Conclusion

Transferring assets before bankruptcy can lead to serious trouble. Canadian law allows trustees to review and reverse unfair transfers. Honest advice from a debt expert helps protect your future.

Speak with a trusted professional before making decisions about your property. Careful planning can help you start fresh on the path to being debt-free.