real estate,  personal bankruptcy

Transferring a Home Before Bankruptcy

A reader asks:

My father fell critically ill earlier this year. As a result, he is unable to pay his credit cards as he is not working. The bills are very large. He has no financial assets other than his a commercial property (owned outright). What options does he have?

In relation, can the property be sold to my brother and/or proceeds transferred to him (inheritance), then my father proceed to file bankruptcy without repercussions?

Here is a breakdown of his finances:

  1. $1.2m – commercial property – owned outright
  2. Approx 60-80k in credit card debt only
  3. Zero income stream from any source, sadly. My father is not a future planner.

Our response:

If the property was transferred to your brother or any non-arm’s length party for below its fair market value (let’s say $2.00), that would be considered what is legally known as a Fraudulent Conveyance on the part of your father (if he signs the transfer deed himself) or his POA. It’s considered “fraudulent” because the intent of the transferor is to keep his assets out of the hands of his creditors.

In a non-bankruptcy scenario, the remedy for his creditors if they discovered this transaction (which they can; your father likely would have listed this property as an asset when he applied for these credit accounts and they can always conduct a land registry search to see the transaction) is that they can make an application to the Court and have the transfer set aside, thus bringing the property back to his estate. His creditors can subsequently obtain a Writ of Execution from the Court which would allow the Sheriff to secure the property and sell it, with the sale proceeds going to pay off the debt of the creditor(s) who made the application to Court.

In a bankruptcy scenario, when your father (or his POA, who can file bankruptcy on his behalf) signs the bankruptcy paperwork, one of the documents he’ll sign is an Affidavit under oath asking if he sold or transferred any assets within the preceding 5 years. If he answers “no”, then he would have committed perjury, which is of course a crime.

In any event, a Trustee can easily ascertain whether your father transferred any real estate because he can perform a land registry search.

Upon discovering the transfer, the Trustee would make an application under the Bankruptcy & Insolvency Act to have the Court set the transfer aside. He’d then liquidate the property and distribute the proceeds to your father’s creditors. Any surplus after his fees would be returned to your father (or his Estate).

Moreover, your father (or his POA), may face criminal charges for perjury under the Criminal Code and committing an offence under the Bankruptcy & Insolvency Act.

My advice: don’t do it!

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With many years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. so that he could dedicate his professional life to help people from all walks of life to deal with their debt.