Can You Sell Assets before Filing for Bankruptcy?
Certain assets are exempt from creditors to satisfy a judgment against you. In Michigan, this includes things such as public assistance, Supplemental Security Income, Social Security, veteran’s benefits, child support, worker’s compensation, and unemployment insurance, among other assets. You may sell an exempt property before filing for bankruptcy so long as you receive a fair price for it, but there is no real need to do so since the exempt property is just that, exempt under a Chapter 7 bankruptcy.
Selling other, non-exempt assets before filing is discouraged, especially when it is done to hinder, delay, or defraud creditors. Bankruptcy courts can look back in time and investigate a transfer or sale of property made before filing depending on the type of property involved, up to 10 years into the past in some cases.
Transfers can be investigated if you sold the non-exempt property to purchase new exempt property, increase the value of the existing exempt property, prefer a certain creditor over another, or purchase luxury services. In such cases, you may leave yourself open for a lawsuit by one of your creditors.
Bankruptcy courts will try to determine your intent in transferring non-exempt property. In doing so, they will look for factors such as whether:
- You received fair value for the property
- You retained control over the property
- You were in dire financial straits before or just after the transfer
- The transfer was to a family member
- The transfer was a response to a threat to sue you
- You tried to hide the transfer
The court does not need to determine what your intent was if you use your state’s exemptions to sell the non-exempt property within four years of filing for bankruptcy. If you use the proceeds to increase the value of your home in any way, the court can reduce your exemption by the same amount.
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