Occasionally I meet potential clients who, in an effort to “protect” their home or car, have transferred it to a friend or family member. Unless the transfer occurred more than 4 years prior (the applicable statute of limitations in PA), it is problematic for several reasons: (1) A transfer made by someone who is “insolvent” (in other words, in substantial debt) can potentially be set aside by a court as a “fraudulent transfer”; (2) Real estate encumbered by a mortgage may not be transferred without the lender’s consent; and (3) Now the transferee (the friend or family member who was trying to help) could be dragged into a court proceeding – certainly not something they had envisioned when agreeing to help out. Moreover, often times the real property or vehicle the client was attempting to safeguard via transfer could have been completely protected in bankruptcy, and the fraudulent conveyance only served to endanger it by inviting court scrutiny.
The bottom line is that if someone with outstanding debt is considering transferring property in an effort to protect it, he or she should first speak with an attorney to ensure that the transfer is appropriate and will not run afoul of the law. In the dozens of times I have been encountered with such transfers, in almost every circumstance the client would have been better off if the transfer had never been made.