When you receive a gift, you might assume that you are simply allowed to keep it. However, in some cases, you may be forced to hand your gift over to someone else if the gift-giver was also filing for bankruptcy. Oftentimes, giving a gift is considered fraudulent during bankruptcy because the debtor is expected to hand all of his or her assets over to pay creditors. Therefore, you might become involved in the bankruptcy case if you receive a gift.

Chapter 13

When a debtor files for bankruptcy and gives a gift, he or she will need to disclose the gift on the bankruptcy schedules if the value of the gift is above a certain dollar amount. This is based on the state in which you live. What happens next depends on the form of bankruptcy that the debtor is filing under. If he or she is filing for Chapter 13 bankruptcy, this is essentially a payment plan. The debtor will be considered to have more of a disposable income and may be required to pay more, but this won't necessarily affect the gift receiver.

Chapter 7

Chapter 7 bankruptcy is different. With this form of bankruptcy, the debtor is supposed to sell off all his or her assets. A large transfer within two years of a bankruptcy filing is considered a fraudulent transfer. Some states may even look back seven years ago to identify a fraudulent transfer. 

Fraudulent Transfers

With a fraudulent transfer, the court will attempt to acquire the property or the value of the property and will consider it an asset for bankruptcy purposes. Also, if the courts determine that the asset was transferred intentionally to commit fraud, the courts may not allow the debtor to discharge his or her debt. Therefore, if you receive a gift, you might be forced to hand it over.

Bankruptcy Representation

If you're not sure whether you can receive a gift, the best option is for you and the debtor to speak with a bankruptcy law attorney. One of the challenges with bankruptcy is that the debtor needs to be very particular with what he or she does with assets. Fortunately, small gifts are typically considered normal and would not be considered a fraudulent transfer in most cases. You will be able to receive a nice gift basket from your loved one during Christmas, but they can't buy you a car.