Can I Sell My Assets Before Filing for a Bankruptcy?

When financial struggles are significant enough that you’re considering bankruptcy, assessing your assets’ cash value for resale is a natural tendency. After all, selling them would boost your cash position and give you greater control of their disposition than allowing a bankruptcy trustee to take over the process. Though it is possible to sell property before filing for bankruptcy, it is important to do it the right way in order to prevent problems with the process. Here’s what you need to know about what you can and can’t do.

When you file for bankruptcy, one of the first things you will need to do is advise the bankruptcy trustee of any transfer of assets that took place prior to the filing. A transfer can be a sale or it can be giving an asset away, but either way, the trustee will want to know whether the transfer was made in good faith or with the intent to hide or protect it from the impact of the bankruptcy process. If it is determined that property was sold for less than it was worth, or transferred in order to shield it from being liquidated, the transfer may be deemed fraudulent.

If you purposely sell an item for far less than it is worth prior to bankruptcy, you run the risk that the transfer will be voided. This means that the trustee would sue the buyer, recover the property, and then sell it themselves. This is something that would only happen in a Chapter 7 bankruptcy. If your bankruptcy is filed under Chapter 13 then the result of a fraudulent transfer would be that you will be made to pay the difference between the price you sold it for and its real value, and this amount would have to be provided to your creditors as part of your bankruptcy payment plan. If your transfer of property involves putting it into somebody else’s name with the idea that you will actually maintain ownership, you can be accused of a crime punishable by both imprisonment and fines.

While we have focused on the wrong ways to sell property before filing for bankruptcy, there are also legal ways to go about it. It is perfectly acceptable for you to sell an asset for its fair market value as long as you report the sale on your bankruptcy paperwork, tell the court what you did with the cash that you received, and use that cash for normal living expenses. You cannot have used it for luxuries or vacations, and you can’t have used it to repay relatives within one year of your filing.

As you can see, the rules surrounding bankruptcy can be complex and it is easy to make a mistake that can get you into real trouble. For assistance, contact our bankruptcy attorneys who will guide you through the process.