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Can I Sell or Give Away Property Before Bankruptcy?

You can sell or give away certain kinds of property before filing for Chapter 7 bankruptcy, but you should always have a clear understanding of what you can or can’t transfer to avoid legal complications.

Transferring prohibited property, or any property for a prohibited reason, can prevent you from receiving a discharge of debt and even result in criminal liability for bankruptcy fraud.

The best way to avoid making a critical mistake is to seek legal counsel from an experienced bankruptcy attorney. With guidance from your lawyer, you can have a better understanding of the risks of transferring property before filing for bankruptcy and how to avoid facing unnecessary penalties.

What Kinds of Property Can I Transfer Before Filing Bankruptcy?

Generally, you can transfer property that you could otherwise exempt from the bankruptcy process. California provides two series of exemptions that allow people to protect certain kinds of property from liquidation. Such property includes many personal belongings, some home equity, some equity in a vehicle, retirement assets, and more.

Other factors that can affect whether or not it’s OK to transfer property include these:

  • Is the property exempt or nonexempt?
  • Did the transfer occur within two years of filing for bankruptcy?
  • Did the property transfer for its fair market value?
  • How did you use the proceeds from the transfer?
  • Why did you make the transfer?

Again, however, you should avoid making assumptions about what you can transfer without professional guidance for your unique situation. Property that you can exempt in one series may not be exempted in the other. Transferring property before bankruptcy can result in unnecessary complications without an understanding of which series is most advantageous to your situation.

Avoid Selling Nonexempt Property

Nonexempt property typically includes things such as luxury items that you don’t need to maintain your household or employment.

You might assume it’s OK to sell this property to pay your bills, but even this can cause problems. For example, choosing to pay off one creditor over another isn’t your decision to make when you intend to file for bankruptcy. Such preferential transfers are especially problematic when the creditors you select are relatives, business partners, or others from whom you can benefit.

Your Reason for Transferring Property Matters

For any pre-bankruptcy transfer of property, the court will evaluate your reason for doing so. In many cases, transferring property and using the proceeds to afford necessary expenses (food, shelter, medical care, etc.) is acceptable. Transfers for other reasons, however, can put you in a lot of trouble.

The following aspects of a transfer can result in allegations of bankruptcy fraud:

  • The transfer was intended to hide property from the bankruptcy estate.
  • There was an effort to conceal a transfer.
  • A transfer occurred between a bankruptcy filer and a person close to them.
  • The transfer occurred below the property’s fair market value.
  • The bankruptcy filer retained control over the property after the transfer.
  • The bankruptcy filer was insolvent when the transfer occurred.

If any of the aspects above are reflected in someone’s reason to transfer property, they can face severe legal consequences – including a criminal charge for bankruptcy fraud.

We Can Help with Pre-Bankruptcy Planning

You can avoid making mistakes that can have unintended consequences during your bankruptcy case by consulting with a bankruptcy attorney. Pre-bankruptcy planning can help you understand which transfers in your unique situation are acceptable and how to conduct them to minimize your liability.

We at Nguyen Law Group understand that preparing for bankruptcy alone can be as difficult as going through one alone. When you work with our capable and experienced attorney, however, you don’t have to go through any of it alone.

Learn more about the legal guidance and services we can provide by contacting us online now.