The short answer? Yes, you most certainly can. But, you need to keep some things in mind before selling any property within two years of filing bankruptcy.
First, the sale itself:
- Sale for “Market Value”. All property should be sold for “market value” (what you’d expect to receive from an auction, garage sale, or classified ad) with the sale reported on the bankruptcy schedules. This is definitely the best approach.
- Sale for “Less than Market Value.” You will have to disclose such a transfer on the bankruptcy schedules. This risky approach will invite major scrutiny by the bankruptcy court. In this instance, the court has the power to collect from, even sue, the purchaser for the difference between the market value and the amount you received from the sale.
- Sale to a Family Member. This too will need to be listed on the bankruptcy schedules. The bankruptcy court will definitely take a very close look at this type of transfer. Unfortunately, the court will probably assume that you sold the property for less than market value. So, plan on providing evidence to the contrary. Here again, the trustee has the power to collect and sue for the difference.
Second, how to retain your money from the sale (finding an “exemption” to shield your cash):
- If you sold your home, the money would be exempt (up to $60,000) for a period of 6 months, if it is segregated in a separate bank account.
- For all other property, a car, for example, the money would not be exempt, unless the bankruptcy filer has some exemption large enough to protect the cash. For more information regarding bankruptcy exemptions, see our previous blog post Bankruptcy Exemptions – Will I Lose My Property If I File Bankruptcy.
- If your “cash” won’t be exempt, then use it to buy property that will be exempt. For example, if the cash from your sale exceeds your personal property exemption ($2,500), then use some of the money to buy a small freezer and fill it with frozen food. See, again, our blog post on Bankruptcy Exemptions referred to above.
If you are planning to file bankruptcy in the near future, and you’re also considering the sale of property, contact the attorneys at Steffens Law Office to discuss how to protect your assets.