Can You Dispose of Assets before You File a Bankruptcy Petition?

Steps to Minimize Potential Legal Problems

bankruptcy petitionWhen you are facing financial challenges, a common strategy is often to sell assets you don’t need, so that you can pay off creditors or meet your basis needs. If you subsequently file for bankruptcy protection, though, you may face questions from the bankruptcy court regarding the disposition of those assets. You will want to take care to show that the disposition of assets was all above board and not with the intention of defrauding the bankruptcy court or your creditors.

The most important thing—make certain any sale of assets would be considered an “arms length transaction.” The terms of the transaction should not reflect that the parties have common interests, or that any favoritism was made because of the relationship of the parties. Make certain that you get a fair market appraisal of the goods sold and that the ultimate price is what a willing buyer and willing seller would agree to, assuming they were not trying to make any kind of gift or similar exchange. The classic example of a fraudulent transfer is the sale or gift of extremely valuable property to a family member or friend for far less than its market value.

You also need to be careful as well with gifts to charitable organizations. You may be required to show that the organization is legitimate, and that you make similar donations on a regular basis. You may also be required to show that you are not personally involved with or related to the charity, and that you will not be a significant beneficiary of the donation. For example, it may be considered a fraudulent transfer if you donate a vehicle to a non-profit, when you’ll be using the vehicle as a volunteer or employee.

Regardless of how you distribute property before a bankruptcy, you need to keep detailed and accurate records. Your records should show what you sold or gave away, who the recipient was, the fair market value, and whether there were other potential buyers.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

At the Law Office of Carrie L. Weir, I provide a free initial consultation to anyone with questions or concerns regarding a personal bankruptcy filing. Contact my office by e-mail or call me at 972-772-3083 to schedule a private consultation. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.

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