Lawyers
Canceling the award of a property given as a gift
as part of bankruptcy proceedings
As part of a bankruptcy proceeding, an investigation of the debtor’s finances is conducted in order to locate all of his assets and realize them for the creditors’ benefit. There has been more than one instance in which the investigation has revealed that the debtor gave assets, without consideration or in part, to another individual in order to avoid having those assets placed on the list of assets to be repaid. As a result, the grant can be deemed invalid, canceled, and the assets can be used to settle any outstanding debts. When? In the article in front of you, we will address this question.
מאת עו״ד ונוטריון יגאל מור
דיוק בייעוץ המשפטי. מצויינות בליווי המשפטי.
How does a bankruptcy process work?
In the event that a person becomes indebted to the point of being unable to pay, he may file for bankruptcy. In the course of the procedure, the debtor receives protection from creditors: the procedures that have been brought against him to this point will be frozen and creditors will not be permitted to initiate new procedures against him. An in-depth financial investigation is conducted during the PASHAR procedure in order to locate all of the debtor’s assets, realizing them for the purpose of repaying his creditors’ debts. After assessing the financial circumstances of the debtor, a repayment plan will be set up for him for a specified period of time, at which point he will receive a discharge of his remaining debts. The PASHAR procedure is designed to balance the right of a debtor to lead a normal lifestyle despite his debts, while maintaining the proprietary right of creditors to receive their money. As a means of protecting the interests of the creditors, the trustee in charge of the financial investigation of the debtor was authorized to cancel any transfers made by the debtor prior to bankruptcy proceedings and to include them in his inventory of assets that will be used to satisfy the debts.
Award cancellation
An important aspect of a bankruptcy proceeding is making certain that all of the debtor’s assets that can be realized are actually realized in order to cover the debtor’s obligations. As part of the debtor’s financial investigation, the trustee is authorised to look back up to ten years in his investigation and order that an asset that the debtor granted before the bankruptcy procedure be canceled and added to the list of assets for realization. Essentially, this authority is based on the rationale that giving assets to creditors prior to bankruptcy proceedings damages the debtor’s ability to repay them and violates their proprietary rights. In this regard, it should be noted that the trustee can revoke the grant even if it was not made with the intention to smuggle assets, i.e., there is no requirement to prove that an immoral motive existed. Is a trustee able to cancel any grant? No, this authority has exceptions as described below.
Exceptions
A trustee’s authority to cancel a grant is not absolute, and several caveats apply:
- As far as the date of the grant is concerned, when a debtor commences bankruptcy proceedings before two years have passed from the date of the grant, the trustee may reject the grant. It will, however, be void if the debtor becomes bankrupt after two years from the date of the grant and before ten years have passed, unless it can be demonstrated that the debtor could have paid off his debts without needing the property he granted.
- The circumstances of the grant of the property: The law excludes the possibility of cancelling the grant of property due to marriage, as well as a grant that was given an appropriate consideration, which means that it is not a grant without consideration that impairs the debtor’s ability to pay.
Seek legal advice
It is always advisable to seek legal advice before commencing a bankruptcy proceeding. As a first step, ensure that this is the most appropriate course of action for the debtor. Secondly, in order to maintain the rights of the debtor throughout the procedure and in between, to act to prevent the cancellation of the award as much as the trustee requests it be done. It is important to note that there are exceptions to the trustee’s power to cancel a grant, and the lawyer’s role is to put forth the appropriate arguments in this case to demonstrate that the trustee has no power to cancel the grant.
