The Ninth Circuit U.S. Court of Appeals recently released an opinion in which they agreed with a bankruptcy court’s ruling that rejected a creditor’s request to bar the discharge of a bankruptcy debtor’s debt to him, based on allegations that the debtor had fraudulently transferred property before the bankruptcy proceeding. These allegations were based upon the fact that the debtor transferred a piece of property from himself to his own living trust prior to the bankruptcy proceeding. The court rejected the creditor’s arguments, finding that the debtor had waited over one year from the time he transferred the property before filing the bankruptcy petition, and the creditor’s debt was therefore validly discharged.
The creditor’s claim in the case of DeNoce v. Neff was based upon a provision of the U.S. Bankruptcy Code that bars the discharge of debts if the debtor, within one year prior to filing the bankruptcy, has fraudulently transferred property with the intent to hinder, delay, or defraud a creditor. The creditor acknowledged that the property at issue was transferred more than one year before the debtor filed this bankruptcy petition, but he argued that the debtor had filed two other bankruptcy petitions (that were dismissed) within less than a year from his transfer of the property. The creditor requested that the court “equitably toll” the one-year time frame, in other words stopping the clock from running while the debtor was pursuing the previous bankruptcies.
Equitable tolling is a legal creation that is generally applied only to statutes of limitations or similar rules. A statute of limitations should be extended if a plaintiff could not have known about their claim until after the statute of limitations had expired. For example, in a medical malpractice case in which a medical instrument is left in a patient’s body, the statute of limitations will not start to run until the plaintiff discovers the mistake or reasonably should have discovered it. In applying the rules of equitable tolling to the creditor’s claim in the DeNoce case, the courts determined that equitable tolling should not apply, since the one-year time limit in the bankruptcy code is not a statute of limitations, nor is it substantially similar enough to warrant the application of the equitable tolling rules.
Property Transfers that Are Permitted in Anticipation of Bankruptcy
As demonstrated by this recent case, bankruptcy debtors are permitted to make certain transfers of property before they file for bankruptcy, even when a bankruptcy is anticipated. The one-year rule that applied in the DeNoce case is not the only rule to govern transfers of property, and different standards may apply depending on the type of asset being transferred, the intention of the transfer, the beneficiary of the transfer, and the type of bankruptcy being sought by the debtor. Debtors contemplating bankruptcy should generally contact a qualified bankruptcy attorney well before they desire to file their case, so their property may be protected with adequate planning and good advice.
Are You Considering Bankruptcy?
If you or a loved one is struggling with debt and considering bankruptcy, contacting a skilled bankruptcy attorney should be the first step you take toward financial recovery. Depending on the circumstances unique to each bankruptcy debtor, there are multiple ways to maximize the amount of debt that can be discharged while protecting property that can be exempted or legitimately transferred. The Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center know how to advocate for the results our clients desire, and we pride ourselves in helping people take control of their finances. We advise and represent clients nationwide in many different types of bankruptcy proceedings. Call 866-366-3328 today to schedule a risk-free consultation or contact us through our website.
More Blog Posts:
Ninth Circuit Dismisses Bankruptcy Appeal as Moot After Debtor Fails to Block Sale of All Relevant Assets and Dismissal of Underlying Bankruptcy, Kentucky Bankruptcy Lawyers Blog, published June 17, 2016.
Ninth Circuit Reverses Bankruptcy Panel’s Finding that Attorney’s Debt Was Not Dischargeable, Kentucky Bankruptcy Lawyers Blog, published May 12, 2016.