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Cookeville Office 931-400-2218

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Time of property transfer can be a bankruptcy issue

| Dec 6, 2016 | Chapter 7 |

Every Tennessee bankruptcy filing presents courts with unique circumstances to consider. A case between a dentist and a patient awarded a judgment for malpractice illustrates one of the problems that can arise between debtors and creditors. In this case before the U.S. Court of Appeals for the 9th Circuit, the judges needed to decide if the legal concept of equitable tolling supported the creditor’s claim.

The dentist had transferred his condominium into a trust after filing for Chapter 13 bankruptcy. The court dismissed his first two requests for Chapter 13 protection. By the time he filed a third petition under Chapter 7, more than one year had passed since he removed himself from ownership of the condominium. This elapsed time period protected the property from consideration as a bankruptcy asset. The man seeking compensation for malpractice appealed the bankruptcy court’s discharge of the case on the grounds that the dentist had violated the law by hindering his creditors.

On appeal, the court decided that equitable tolling did not apply to the time that had elapsed since the property transfer. The court explained that equitable tolling applied to time periods that served as statutes of limitations. The appellate panel ruled that the one-year period only set restrictions upon the debtor’s actions and not claims by creditors.

As this case demonstrates, there are a variety of laws that apply to Chapter 7, and the failure to abide by them can result in a dismissal of a petition or a failure to receive a discharge. An attorney can explain what particular rules a client will be required to follow before a petition is filed.

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