Mar 16, 2012 Posted by Grace Macarthur No Comments » Tags: Deed Quitclaim Deed

Quitclaim Deed and Bankruptcy

If you have ever looked for a quick and easy way to transfer real estate between family members, you may have used or have at least heard of a quitclaim deed.  A quitclaim deed, which is often mistakenly referred to as a “quickclaim deed,” allows someone to transfer his rights to real property, such as real estate, to another person.

A quitclaim deed is similar to a warranty deed except that it does not offer the clear title protection provided with a warranty deed.  Therefore, whereas a title company will use a more formal warranty deed to execute the transfer of property and provide a guarantee of clear title, quitclaim deeds are typically used to transfer property between family members or others who know and trust one another where the need to warranty a clear title is not as important.

But what happens if you have received property from a family member using a quitclaim deed and now you have to declare bankruptcy?  What if you have recently transferred the property back to that family member or you are wondering if you can give the property back just before you declare bankruptcy?  Read on to find out what you should consider if a quitclaim transfer of property has occurred (or you are wanting it to occur) just before you declare bankruptcy.

A quitclaim deed is a binding legal document, the same as a warranty deed or other legal documents that may be used to transfer real property from owner by one person to another.  This is true even though any individual can execute a quitclaim deed, as opposed to having the deed executed and filed by a title company or an attorney.  Therefore, if a quitclaim deed is executed properly—that is, if it has all the appropriate signatures, is notarized, and is filed in the county where the property exists—then the legal transfer of property from one person to another has taken place and has been recorded in the public record.  The transfer is as legitimate as when a title company files a warranty deed as a part of you purchasing a home from a home builder.

As a result, if the person who received property through a quitclaim deed needs to declare bankruptcy, that property they received through the quitclaim deed is a part of the person’s assets.  The person declaring bankruptcy would need to include the property in the list off their assets on the appropriate bankruptcy paperwork.  This is true whether the person is considering filing Chapter 7 or Chapter 13 bankruptcy.

If you need to declare bankruptcy and you transfer property you previously received through the filing of a quitclaim deed back to the original property holder (or to anyone else for that matter), the bankruptcy court will by default assume you are trying to hide the asset and commit fraud.  It is a common practice for people declaring bankruptcy to transfer their assets to someone else just before declaring bankruptcy in an attempt to keep that property from being used to satisfy money owed to creditors.

It is generally unwise to attempt to hide the transfer of property from the bankruptcy court even if that transfer was performed using a quitclaim deed.  As noted above, if a quitclaim transfer of property was executed properly and filed with the county, it is considered a binding legal transfer and is available for viewing in the public record.  A bankruptcy court can potentially identify through the public record any property that you have that you have failed to list in your bankruptcy.  Such an attempt to hide assets and deceive the bankruptcy court can result in your entire bankruptcy being thrown out.

The information above is general in nature.  While it is accurate in terms of how bankruptcy courts will generally view the transfer of property away from someone before that person declares bankruptcy, there could be other details in your individual situation that are relevant that cannot be addressed in this forum.  Therefore, it is important to speak with a bankruptcy attorney about your situation.  A bankruptcy attorney will be able to evaluate your unique case and advise you on what options you have before you declare bankruptcy.

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