Bankruptcy Debtor Fails to Justify Transfer of Farm to Her Father Before Bankruptcy

The United States Seventh Circuit Court of Appeals recently released a decision in a bankruptcy appeal that affirmed a lower court’s ruling that voided a debtor’s pre-filing transfer of a farm to her father, allowing the trustee to take partial possession of the property. The debtor’s claim that the property was given to her father in exchange for his cessation of unrelated legal proceedings against her was rejected by the appellate court as unjustified and not reasonably related to the value of the asset that was transferred before the debtor filed for bankruptcy.

FarmFourteen Months Before Debtor’s Bankruptcy, She Transfers a Farm to Her Father Without Compensation

The appellant in the case of Griswold v. Zeddun was a Chapter 7 bankruptcy debtor who appealed the bankruptcy court’s decision to avoid the transfer of a farm to her father before she filed for bankruptcy. The lower courts agreed that the transfer of the property was a “fraudulent transfer” under the meaning of the bankruptcy code, since the debtor was not adequately compensated for the property, giving the appearance that the transfer was made to allow the debtor and her father to avoid the jurisdiction of the bankruptcy court. The debtor had claimed that the transfer was legitimate because her father assumed the debt on the property, and he agreed to stop pursuing an unrelated legal claim against her as compensation for the remaining equity in the property.

The Courts Reject the Debtor’s Argument, Holding That the Debtor Was Not Compensated for the Fair Market Value of the Property

Both the appellate panel and the Seventh Circuit agreed that the debtor’s reasons for the transfer were not sufficient to justify the transfer. The courts ruled that the farm property had over $150,000 in equity at the time of the transfer, and the debtor’s claim that she was released from a lawsuit as partial compensation for the transfer was not consistent with the underlying facts. The court found that the debtor’s father’s legal claim against the debtor did not have merit, and his release amounted only to a promise not to pursue frivolous appeals on the matter, a promise found to be legally worthless. As a result of the Seventh Circuit’s affirmation of the lower decisions, the bankruptcy trustee will be permitted to take possession of the farm and use the equity to compensate her creditors.

Methods to Protect Assets Before or During a Bankruptcy

Although the debtor in the Griswold case was not able to protect her family’s assets by transferring them in anticipation of the bankruptcy, there are legal methods to protect some assets while discharging other debts through a bankruptcy. Some assets may be protected by placing them in trust, and others, such as a debtor’s primary residence, may be exempt from the bankruptcy trustee’s control. The transfer or sale of assets before a bankruptcy is filed for fair market value may also be upheld as part of a discharge agreement. Furthermore, certain types of bankruptcy proceedings allow debtors to keep all of their assets in exchange for a monthly payment. Debtors considering bankruptcy should consult with a knowledgeable bankruptcy attorney to discuss their options to discharge debts while maintaining possession of their assets.

Finding Skilled Representation for Your Bankruptcy Case

If you or a loved one is struggling with debt, a bankruptcy proceeding could allow you to get your finances back under control without giving up all of your assets. The advice of an experienced bankruptcy attorney can help you make the most of your bankruptcy claim while abiding by the rules and regulations against fraudulent transfers. The Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center know the complex rules and regulations that bankruptcies must follow, and we can help you protect the assets you can keep while discharging the debts that you are unable to pay. Our bankruptcy lawyers represent clients nationwide in various bankruptcy proceedings. Call 866-366-3328 today to schedule a risk-free consultation or contact us through our website.

More Blog Posts:

Employment Discrimination Lawsuit is Dismissed After Plaintiff Fails to Disclose it in a Bankruptcy Proceeding, Kentucky Bankruptcy Lawyers Blog, published July 28, 2016.

Federal Appeals Court Declines to Apply Equitable Tolling to Block Alleged Fraudulent Transfer, Kentucky Bankruptcy Lawyers Blog, published June 30, 2016.

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