There’s a lot of confusion about whether it’s OK to sell your assets before filing for bankruptcy. The short answer is yes, as long as you stay within the guidelines. Here’s what you need to know about selling assets before bankruptcy:
It’s okay to sell—at fair value
If you are about to file for bankruptcy, you are free to sell your assets in return for “reasonably equivalent value.” In other words, you have to sell an item for what it’s worth. The value of any particular belonging depends on the current market. While an item may be worth less today than it was when you acquired it, as long as you get its worth on today’s market, you’re fine.
Why must an item sell for its worth?
Bankruptcy law doesn’t scrutinize the sale; it scrutinizes the price. That’s because when you sell something for less than its actually worth, you have reduced your assets, which means there are less assets to liquidate for your creditors. Such sales are referred to as fraudulent transfers.
Fraudulent transfers are classified into two categories:
- Actual fraudulent transfers – Transfers purposely intended to hide assets from your creditors.
- Constructive fraudulent transfers – Transfer of an asset for less than its value as a gift, donation, etc.
How to sell an item for its fair value
Wondering exactly how to sell an asset for its true worth on the market and avoid conducting a fraudulent transfer? You must expose the item to the market, which could be as simple as a yard sale, craigslist ad, pawn shop appraisal, etc. Just be sure to record the steps of your sale, and list the transfer in the Statement of Financial Affairs and bankruptcy schedules.
It’s important to properly document your sales to prevent a potential delay or denial of your bankruptcy case.
Need help sorting through your bankruptcy case? Schedule a free consultation with a Las Vegas bankruptcy lawyer by calling DeLuca & Associates at (702) 252-4673.