When an individual files a Chapter 7 bankruptcy , the court may take away any of his property that is not exempt under the law and use it to pay his creditors. Exemptions from creditors under Illinois law include among other assets, $15,000.00 of equity in one’s home, $2,400.00 of equity in a car, and up to $4,000.00 of any personal property.
Debtors sometimes believe that the way to avoid losing property that is not exempt is to give it away to a friend or relative prior to filing bankruptcy. However, the law labels this type of transaction a “fraudulent transfer” and the bankruptcy code provides ways for the trustee is avoid these fraudulent transfers and recover the property from the person who received the gift.
Since in most cases the debtor would have still lost the property in bankruptcy, if he had not made the transfer in advance, it might seem that he has nothing to lose by trying. However, this is not always true. A number of courts have held that the trustee can recover property transferred right before bankruptcy by an insolvent debtor, even if it would have been exempt in the bankruptcy. In other words the debtor can lose his exemption in a house or a car by attempting to pull off what he considers a clever scheme, when in fact his shenanigans were not even necessary in the first place.
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