Asset transfers prior to bankruptcy

April 2026 – 9 min reading

Transferring assets before bankruptcy: a dangerous idea with very real consequences

BRESSE Syndics – Licensed Insolvency Syndics – Greater Quebec City Area

When debts pile up, it’s only human to want to protect your assets. But transferring your home to your children, giving your savings to your spouse or selling your assets at a low price before you go bankrupt – these are actions that can be nullified by the law, expose your loved ones to lawsuits and get you into serious trouble. Here’s why, and what the real solution is.

The situation is understandable: you’re in financial difficulty, you feel bankruptcy looming, and you want to protect what you’ve built. You’re thinking about your family home, your life savings, the assets you want to pass on to your children.

So you act – you transfer assets to loved ones, you give away, you sell below market value, thinking you’re putting these assets beyond the reach of your creditors. This is a mistake. Often a serious mistake. And here’s why.

What are pre-bankruptcy asset transfers?

A pre-bankruptcy transfer of assets occurs when an indebted person disposes of assets – by giving them away, selling them for less than their real value, or transferring them to a relative – in the months or years preceding bankruptcy. These gestures are intended to remove these assets from the reach of creditors.

Here are the most common examples:

• Give the house to your children: A parent transfers ownership of his home to his adult children for a symbolic dollar, believing it to be safe.
• Transferring savings to a spouse: Bank accounts are emptied and placed in the spouse’s name, in the belief that creditors won’t be able to touch them.
• Selling an asset for less than it’s worth: We sell a car, a cottage or a piece of equipment to a friend for a token sum, well below its real market value.
• Paying off a preferred creditor: You pay off a friend or relative first, to the detriment of other creditors – creating an illegal preference.

What these gestures have in common

They deplete the pool of assets available to pay off creditors. And the law – several laws – regulates them very strictly. A trustee, a creditor or the government can annul such transfers and recover the assets and/or their value, even years later. Transfers protect no one. It multiplies the risks.

Legal recourse to cancel these transfers

Good intentions are not enough to make a transfer valid. Several laws – federal and provincial – make it possible to attack and annul such transactions. Here’s an overview.

Bankruptcy and Insolvency Act – Sections 95 to 101

Undervalued transfers, preferences and dividends

The Bankruptcy and Insolvency Act (BIA) provides a number of mechanisms enabling the trustee to contest transactions carried out prior to bankruptcy. These remedies apply even if the transaction appeared legal at the time it was made.

Underpriced transactions – article 96

If you have sold or transferred an asset for significantly less than its market value, the trustee may ask the court to annul the transaction. The contestation period is one year prior to bankruptcy for transactions with third parties, and five years if the transaction involved a person with whom you had a close relationship (spouse, child, partner). It is not necessary to prove fraudulent intent – the simple fact that the price was insufficient is sufficient in many cases.

Preferences – article 95

If you have made a priority payment to a particular creditor in the three months preceding your bankruptcy (or one year if it is a related person), this payment may be cancelled. The trustee may require that the funds be returned to the bankruptcy estate for equitable distribution among all creditors.

Dividends and share buybacks – article 101

This article is aimed specifically at the corporate context. When a corporation pays a dividend or redeems its own shares in the year prior to bankruptcy, when it was insolvent or the transaction rendered it insolvent, the court may hold the directors personally liable to repay these sums to the bankruptcy estate. Shareholders who received the dividend or redemption price may also be required to return the sums received. This is an important remedy to be aware of for any manager who is considering making a payment to himself or herself before a difficult period.

Civil Code of Québec – Action en inopposabilité (formerly action paulienne)

Recourse by creditors and/or the trustee in bankruptcy

Even outside formal bankruptcy proceedings, your creditors have a powerful recourse under Quebec civil law: theaction en inopposabilité, provided for in articles 1631 to 1636 of the Civil Code of Quebec. This recourse allows a creditor to have a transfer declared unenforceable – i.e., to act as if the transaction had never existed. The trustee may also use this recourse

To be successful, it must generally be demonstrated that :

• You were insolvent at the time of the transfer, or the transfer rendered you insolvent.
• The transfer prejudiced creditors by reducing the assets available to repay them.
• The person who received the property knew (or should have known) of your difficult financial situation – which is more easily assumed in the case of a relative.

Important feature: Even in the absence of bankruptcy, a specific creditor can challenge a transfer directly in court. The time limit is generally three years from knowledge of the loss.

Income Tax Act – Art. 160 | Quebec Taxation Act – Art. 14 et seq.

Tax liability of the transferee

It’s perhaps the least-known – and yet one of the most formidable – recourses. The federal and provincial governments have a powerful weapon against asset transfers made to avoid tax debts.

Section 160 of the Income Tax Act (federal)

This section provides that when a person with a tax liability transfers property to a person with whom he or she does not deal at arm’s length (spouse, child, controlled corporation, etc.) for less than fair market value, the transferee becomes personally liable for the tax liability – up to the value received in excess. There is no time limit for the application of this section. The CRA may assess the transferee years after the transfer.

Sections 14 and following of the Quebec Taxation Act

Revenu Québec has an equivalent recourse. If a taxpayer with a debt to Revenu Québec transfers property to a relative for insufficient value, Revenu Québec may assess the transferee for the tax debt, up to the value received. Both governments can act simultaneously and independently.

Example: You owe $45,000 to CRA and $22,000 to Revenu Québec. You transfer your home (value: $300,000, mortgage: $200,000) to your son for $1. Your son has just received a net worth of $99,999. The CRA can assess him for $45,000 and Revenu Québec for $22,000 – even if he didn’t know you had tax debts. It’s his personal responsibility.

In a nutshell:

Between the trustee, your ordinary creditors and the two tax governments, virtually every suspicious transaction made in the years leading up to your bankruptcy can be scrutinized and undone. And it’s not just you who suffers the consequences – your loved ones may find themselves personally sued or assessed. The transfer protects no one. It multiplies the risks.

Why these gestures never reach their goal

Beyond legal remedies, here’s why asset transfers before bankruptcy systematically miss their target:

• The syndic has access to your complete transaction history – bank statements, land registers, notarial deeds. He is trained to detect exactly this type of action.
• Creditors can conduct their own investigations and identify suspicious transfers even before the trustee intervenes.
• ARC and Revenu Québec systematically cross-reference tax and real estate data. A transfer to a relative quickly appears on their radar.
• The people who receive the goods – your children, your spouse, your friends – find themselves exposed to claims they didn’t anticipate. You’re putting them at risk, not protecting them.
• In bankruptcy, a suspicious transfer can lead to your discharge being refused or postponed – prolonging the procedure and worsening your situation.

The real solution: the proposal

If your goal is to protect your assets while paying off your debts, there’s a legal, structured and effective way to do it. It’s called a consumer proposal – and it’s precisely designed to avoid having to choose between your assets and your debts.

What it allows, legally and without risk:

✓ You keep all your assets – house, car, RRSPs, bank accounts. Nothing is seized, nothing is sold.

✓ You only pay off a fraction of your debts – depending on what you can actually afford.

✓ Interest on all your debts is frozen at 0% – as soon as the proposal is submitted.

✓ All appeals, seizures and lawsuits cease immediately – from the day of filing.

✓ Your loved ones are not exposed to any claims, assessments or lawsuits.

✓ You act in full compliance with the law – with no risk of cancellation, no litigation, no legal proceedings.

Whatever people hope to gain by illegally transferring their assets, the consumer proposal gives it to them legally – without the risks, without the recourse, without exposing their loved ones.

Thinking about protecting your assets before a lawsuit?

Before you do something that could come back to bite you in the ass, talk to a trustee. The first meeting at BRESSE is free, confidential and without obligation – and it can show you that there’s a legal way to protect what’s important to you.

2026 BRESSE Syndics – bresse.com – 1 844 890-6767