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Can you transfer your house before bankruptcy?

We are often asked by clients who are insolvent if they can transfer their interest in the family home to their husband or wife and then go bankrupt? In this article we look at what can and can’t be done about this and what the risks are.

Transfer of property before you go bankrupt

If you transfer your interest in your house to your husband or wife before you go bankrupt, this will generally give rise to a claim by your bankruptcy trustee. However, in simple terms:

  • A bankruptcy trustee can only make a claim if the transfer is for less than fair value;
  • If fair value consideration was paid then a bankruptcy trustee will not have a claim; and
  • A claim can only be made if the transfer occurred within the four years before you go bankrupt, or if at the time you made the transfer you were insolvent (whichever period is longer).

So for example, if you had $100,000 equity in your one-half interest in your house and you transferred your interest to your wife and then went bankrupt within four years, your bankruptcy trustee would generally have a claim for $100,000 against your wife.

What should you do?

If you may be subject to financial risks in the future, you should get advice from a solicitor or from us about what you should do. This includes if you are a company director. Directors face various risks, such as they may have personally guaranteed some debts, they can be liable for some ATO debts and superannuation and they could be pursued for insolvent trading.  Whilst things might be going well for your company now, if you encounter problems in the future you want to be as best prepared as you can be.

If you are already insolvent, we may be able to help. There may be things you can do to minimise or avoid risks and to deal with any property you own in a manner which will not give rise to a claim by a bankruptcy trustee. But what you can and can’t do will depend on your circumstances.

Contact us for assistance

If you would like to discuss this article or your situation in general, please contact us for a free no obligation consultation.

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