Florida residents who are considering filing for bankruptcy and are thinking about transferring certain assets out of their estate before doing so may be interested in a 2016 decision of the U.S. Court of Appeals for the 9th Circuit. According to the Bankruptcy Code, a discharge could be denied for debtors who attempt to make property transfers less than a year before they file for bankruptcy. This time requirement is designed to prevent people from improperly taking advantage of the system and defrauding legitimate creditors.
In the 9th Circuit case, a dentist filed for Chapter 13 protection after one of his patients won a malpractice award against him. After he filed, he placed a condominium that he owned into a trust so that it was no longer titled in his name. His Chapter 13 case was dismissed, but he later successfully filed a Chapter 7 petition more than one year after the property transfer.
The patient who sued the dentist sought to have the Chapter 7 discharge barred on the basis that the condo transfer was intended to hinder creditors. His suit relied on the principle of equitable tolling, which allows people to pursue lawsuits under certain circumstances even though the applicable statute of limitations has expired. Because the 9th Circuit held that the one-year transfer section contained in the Bankruptcy Code wasn’t a statute of limitations, however, the dentist was able to obtain a discharge.
When seeking debt relief, people need to choose the most appropriate form of bankruptcy for their situation. The two principal forms of consumer bankruptcy are Chapter 7 and Chapter 13, and an attorney can outline the eligibility and other requirements of each.