Jump to Navigation
888.326.7220 | 585.563.4535 e-mail usRegain Control of your life

What if I sold or gave away property before filing bankruptcy?

If you have sold or given away real estate, cash, cars, or other assets during the six years before you file a bankruptcy in New York State, you need very careful legal advise before filing your case. You need to answer the following questions:

1) Did you sell or give away any asset worth more than $1,000 in the past six years?

2) If so, what was the value of the asset?

3) Was there any mortgage, lien, car loan or other security interest against the asset sold or give away? If so, how much was owed on that security interest?

4) If you gave the asset away, or sold it for less than it was worth, why did you transfer it? Were you trying to avoid paying your creditors?

5) If you gave an asset away, or sold it for less than it was worth, how much did you owe all your creditors at that time and what was the value of all your assets at that time?

Based on your answers, here is the analysis a bankruptcy attorney should use in determining if the sale or transfer is a bankruptcy problem.

First, if you sold the asset for what it was worth, there is no bankruptcy problem, although the bankruptcy trustee may want to know what you did with the money you received.

Second, if you gave away (or sold for less than its value) an asset more than two years ago, but less than six years ago, an important question will be whether that asset was exempt from creditors under New York law at the time you gave it away.

Third, if you have unexempt assets remaining, after you sold or gave away the asset, sufficient to pay off all your debts, you probably do not have a bankruptcy problem (unfortunately, this is rarely the situation.)

Finally, if you gave away an asset to avoid paying your creditors, it is possible a bankruptcy trustee could go after the recipient of the transfer and get the asset back again.

Where do we see these problems? Common examples: husband deed house to wife as part of a divorce; parents deed an interest in real estate to their kids as part of retirement planning; debtor is sued and starts putting money into someone else's bank account to avoid losing it; Parents give a car to a child (maybe the child was paying on it all along). There are many other examples, these are just a few.

The legal issues involved in this issue are called "fraudulent transfer" and "fraudulent conveyance."

A "fraudulent transfer" is giving away (or selling for less than its worth) an asset within TWO years of filing bankruptcy, EITHER with the actual intention of avoiding paying your creditors (that is called an "intentional fraudulent transfer") or at a time when you did not have assets remaining after the transfer sufficient to pay your creditors (that is called a "constructive fraudulent transfer", and your intent in doing the transfer is irrelevant.) Under the bankruptcy code Section 548, a bankruptcy trustee can go after the recipient of the transfer and get the asset back again.

A "fraudulent conveyance" is giving away (or selling for less than its worth) an UNEXEMPT asset within SIX years of filing bankruptcy, EITHER with the actual intention of avoiding paying your creditors (that is called an "intentional fraudulent conveyance") or at a time when you did not have assets remaining after the transfer sufficient to pay your creditors (that is called a "constructive fraudulent conveyance", and your intent in doing the transfer is irrelevant.) A creditor can go after the fraudulent conveyance under New York Debtor and Creditor Law Sections 270-279, and a bankruptcy trustee can use special powers under Bankruptcy Code Section 544 to do the same thing (the trustee is empowered to avoid transfers a creditor could avoid under state law.)

This is a complicated area, and needs careful analysis before you fie a bankruptcy. One major change in the law of this area was a U. S. Supreme Court decision called Marshall v. Marshall, decided June 23, 2010 (not to be confused with a 2006 Supreme Court decision in the same case.) I have written a blog about the case, which may well prohibits a bankruptcy trustee from litigating a "fraudulent conveyance" under New York law in bankruptcy court. If that is the eventual meaning of the case, bankruptcy trustee who wish to avoid (reverse) transfers made more than two years before the bankruptcy was filed, but less than six years, will have to file a lawsuit in either New York State Supreme Court or United States District Court, not bankruptcy court. The time and cost of a state court or district court lawsuit would be so much greater than bankruptcy court litigation that the trustees will probably not bother with small transfers (under $5,000 to $10,000, I would guess.)

I am bankruptcy attorney Peter R. Scribner. From my office in Rochester, New York, I have been helping individuals and families throughout Upstate New York get a fresh start through Chapter 7 and Chapter 13 bankruptcy for more than 20 years. Filing Chapter 7 bankruptcy requires an in-depth understanding of bankruptcy laws. If you have sold or transferred assets in the past six years, and are considering bankruptcy, please be sure to consult an experienced bankruptcy attorney. I would be happy to discuss the issue with you.