Giving grandma the car, the kids the keys to the bungalow in Hawaii or putting Uncle Joe on title to the stock certificate is never a good idea for someone considering filing for bankruptcy.  While giving stuff to family members may seem innocent enough, it is something that can come back to haunt a debtor.  This is because when an individual files for bankruptcy protection, he or she automatically subjects their past and present financial lives to close inspection.  The trustee administering the bankruptcy case typically has a window of time, up to six years in some states, in which to look back and review each transaction entered in to by the debtor.  Furthermore, the review is not limited to transactions involving the exchange of money. 

Under the Uniform Fraudulent Transfer Act, adopted by a majority of states, prepetition transfers by the debtor are subject to attack by the bankruptcy trustee.   Whether or not the debtor engaged in prepetition planning, the trustee may need only prove that at the time of the transfer, the debtor was unable to pay his or her debts and did not receive reasonable value in exchange for the transfer.   The burden of proof then falls on the individual debtor. 

If the trustee establishes that the prebankruptcy transfer was fraudulent, the debtor faces three potential consequences.  The first consequence is that the family member will have to return the property.  Depending on the case, the next consequence is that the United States Trustee may file a §727 objection to discharge complaint.  If the judge grants the objection to discharge complaint, the debtor loses his or her right to obtain a discharge.   Finally, under certain circumstances, the United States Trustee has the discretion to recommend a criminal complaint to the United States Attorney.   This means that in a worst case scenario, the debtor could wind up with an angry relative, a stack of nondischargeable debt and even a jail sentence.