Selling or gifting any assets prior to filing Chapter 7 bankruptcy can be a risky move, but even the stakes are even higher if you are selling real estate. The bankruptcy trustee may decide to repossess the property even after you’ve sold it, causing headache for everyone involved. If the trustee suspects bankruptcy fraud, then you may be denied discharge of your debts, and even face criminal charges.
When a bankruptcy court reviews the sale or transfer of the real estate in question, answers to the following questions may determine whether or not you will be pursued for bankruptcy fraud.
- Was the property exempt or non-exempt?
- Exempt property cannot be sold by a trustee to pay off your debts, which means you may usually keep or sell exempt assets as you please, but non-exempt property is not subject to these protections.
- When was the property sold or transferred?
- A bankruptcy court can look into your financial history and investigate the reasons for the sale or transfer. Depending on the type of property the court may be looking for, it may be able to look as far back as 10 years.
- How did you spend the money from the sale?
- If you use proceeds from the sale to invest in exempt property, buy luxury items, or show favor to a particular creditor, such as friends and family, then the bankruptcy trustee may file a lawsuit against you or the favored creditor to recover the proceeds in order to fairly distribute them among your other creditors.
- Did you sell it for fair market value?
- Selling the property for less than market value could be called an attempt to delay, hinder, or fraud creditors, and may be grounds for the trustee to revoke the sale and repossess the asset.
- Why was the sale or transfer made?
- The court will review your case and try to infer your reasons for making the sale. Each bankruptcy is different, so precedent doesn’t typically carry as much weight as individual testimony in these cases when determining whether or not the sale will be allowed or not.