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Transfers, sales and donations in Bankruptcy

On transfers, sales, and donations of money or property before filing bankruptcy


If you are in a difficult financial situation and are considering filing bankruptcy, don't make the situation any more difficult by transferring any of your belongings to another person or entity. This will probably complicate your case - and unnecessarily so, I should add.

DO NOT transfer any assets, if possible. This includes anything that is in your name (or your spouse's name) even if another person is using the item, any intangibles such as a share of the business, and any possible claim or right to recover money or property. You may be worried that you will lose your property when you file the case - but as a matter of fact, it is often possible to exempt all of your property and save it from liquidation, especially when you file Chapter 13. Transferring the property before your bankruptcy case makes it seem like you are trying to hide assets and defraud creditors, and often has negative repercussions for you and possibly for the person that received the property. If you are in a Chapter 7, the trustee may choose to go after this person to recover the property. If you are in a Chapter 13, the trustee may ask for your monthly plan payment to be raised so that creditors receive at least as much as the transferred property was worth.

I have seen a good number of cases where the transferred property would have been fully exempt and out of the reach of the trustee, had it stayed with the debtor.

If you do need to transfer any assets, make sure that you can provide a detailed explanation as to why such a transfer was necessary and reasonable.



If you sell any of your things in a couple of years before the case is filed, generally this should be ok as long as you are paid a fair market value for the property, and use the proceeds for living expenses. If you receive less than fair market value or give away the item for free, this creates an unfavorable impression on the trustee.

If you make cash or non-cash charitable donations, this is fine as long you are able to provide supporting documentation. The trustee will want to know when the donation was made, what was donated and how much it was worth, and the name, address and nature of the organization in question. This is particularly not a problem if you have a habit of making regular donations. You can continue making such donations even after the case is filed, and the donation expense is an allowable part of your overall budget.

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