When Do Trustees File Lawsuits to Recover Assets in Consumer Bankruptcy?

 Posted on January 31, 2026 in Bankruptcy

Bankruptcy trustees can file lawsuits to recover assets when they believe you transferred property or made payments before filing bankruptcy in ways that were unfair to your creditors. These lawsuits are called adversary proceedings, and they can complicate your bankruptcy case significantly. The trustee's job is to find assets that can be sold to pay your creditors, and they have legal tools to go after property you no longer own if you gave it away or sold it for less than it was worth.

If you are curious about whether filing for bankruptcy in 2026 would help you, call us at 713-526-5220. Our Conroe Board-Certified bankruptcy attorney has helped thousands of people get debt relief and can guide you through the process. We offer free consultations to review your situation and help you avoid common mistakes that trigger trustee lawsuits.

What Are Fraudulent Transfers in Bankruptcy?

A fraudulent transfer happens when you give away or sell property for less than fair value before filing bankruptcy. The word fraudulent sounds scary, but it does not always mean you intended to cheat anyone. Under Texas law and federal bankruptcy law, transfers can be considered fraudulent even if you had innocent reasons for making them.

Actual Fraud

Actual fraud occurs when you intentionally transfer property to hide it from creditors. Examples include:

• Transferring your house to a family member right before filing bankruptcy

• Selling your car to a friend for one dollar when it is worth thousands

• Moving money out of your bank account into someone else's account

• Giving valuable items to relatives to keep them away from the trustee

If the trustee proves you made these transfers to hide assets, they can sue to get the property back. You could also face criminal charges for bankruptcy fraud in extreme cases.

Constructive Fraud

Constructive fraud does not require proof that you intended to cheat creditors. It applies when you transfer property for less than fair value while you were insolvent or became insolvent because of the transfer. Being insolvent means your debts exceed the value of your assets.

For example, if you sold your boat worth $15,000 to your brother for $5,000 six months before filing bankruptcy, the trustee might sue your brother to recover the boat or the difference in value. You may have just wanted to help out family, but the law treats it as unfair to your creditors.

How Far Back Can Bankruptcy Trustees Look at Your Transactions?

Trustees can look back at your financial transactions for different time periods depending on the type of transfer. Under federal bankruptcy law, trustees can challenge fraudulent transfers made within two years before you filed bankruptcy. Texas state law extends this even further. Under the Texas Uniform Fraudulent Transfer Act Section 24.010, certain transfers can be challenged for up to four years.

This means you need to be extremely careful about any property transfers, sales, or gifts you make for years before filing bankruptcy. What seemed like a normal transaction at the time could become a legal problem later.

Preference Payments

Trustees also look at payments you made to creditors in the 90 days before filing bankruptcy. If you paid one creditor more than $600 while not paying others, that payment might be considered a preference. The trustee can sue that creditor to get the money back so it can be distributed fairly among all your creditors.

Payments to family members or business associates get even more scrutiny. The trustee can look back one full year for payments to insiders.

What Can You Do to Avoid Trustee Lawsuits in Bankruptcy?

The best way to avoid trustee lawsuits is to work with a bankruptcy lawyer before you file. An attorney who has helped thousands of people get debt relief knows what transactions raise red flags and can help you time your bankruptcy filing properly.

Wait Before Filing

If you recently made transfers or payments that could be challenged, your lawyer might advise waiting to file bankruptcy. The longer the gap between the transfer and your filing date, the harder it is for the trustee to challenge it. Sometimes waiting six months or a year can make all the difference.

Disclose Everything Honestly

You must list all property transfers and payments on your bankruptcy paperwork. Hiding transactions is bankruptcy fraud and will get you in serious trouble. If you disclose everything honestly, you and your attorney can explain legitimate transactions to the trustee. Trying to hide things only makes the trustee more suspicious and aggressive.

Understand Texas Exemptions

Texas has generous exemption laws under Texas Property Code Section 41.001 and other statutes that protect certain property from creditors. Your homestead, vehicle up to certain values, household goods, and retirement accounts are often exempt. Your lawyer can help you understand what property you can keep so you do not make unnecessary transfers trying to protect assets that were already safe.

Get Fair Value for Sales

If you need to sell property before bankruptcy, make sure you get fair market value and document the sale properly. Keep receipts, get appraisals if needed, and be ready to show the trustee that the transaction was legitimate.

Avoid Paying Favorites

Do not pay back loans from family members or friends right before filing bankruptcy. These payments are often considered preferences. It puts your relatives in the position of being sued by the trustee to return the money.

Call a Galveston, TX Bankruptcy Lawyer Today

Trustee lawsuits can delay your bankruptcy discharge and cost you property you thought was safe. The good news is that most trustee lawsuits can be avoided with careful planning and honest disclosure. 

Our Conroe bankruptcy attorney has helped thousands of people get debt relief and knows how to structure your case to avoid unnecessary complications. We offer free consultations to review your financial situation and help you understand your options. Call The Fealy Law Firm, PC at 713-526-5220 today to get started.