When you make the difficult decision to file for bankruptcy, it can be incredibly overwhelming. Not only is the actual process of filing for bankruptcy incredibly tedious but there are several considerations you’ll need to make before the start of this process. For example, you may not have known that to file for bankruptcy, you must take an approved credit counseling class. Additionally, you may be unaware that your decision to sell assets could be considered fraud. As such, the following blog explores what you should know before selling assets and the importance of working with a Montgomery County bankruptcy lawyer during this process.
What Assets Are Protected During Bankruptcy in PA?
There is a common misconception that once you file for bankruptcy, all of your assets are at risk of being taken by creditors. However, it’s important to understand that this is far from the truth. In reality, the only time your assets are at risk is during Chapter 7, with very few instances occurring during Chapter 13. Chapter 7 is a liquidation process, meaning your assets will be seized by the bankruptcy trustee assigned to your case and used to repay your creditors. However, not all assets will be taken, as many are subject to state and federal exemptions, thus providing important protections.
Bankruptcy is an incredibly complicated process. One of the most common areas of confusion regards your right to sell property before filing. On one hand, the property is yours and you have the right to do with it what you please. However, if you’re also responsible for paying your creditors back, and in some instances, this can be viewed as fraud. It’s always best to consult an experienced attorney before selling an asset if you are considering bankruptcy, especially when you’re unsure what assets are exempt versus non-exempt.
Am I Allowed to Sell Assets Before Filing for Bankruptcy?
Generally, if you sell assets to pay your rent, buy groceries, or keep your utilities on, you’ll have no issues with the bankruptcy court, as these sales were necessary. However, it’s always in your best interest to keep a log of when assets were sold, how much they were valued at, the price for which you sold them, and what you did with the funds.
If you wish to sell other assets before filing for bankruptcy, it’s imperative to understand when this can be considered fraud. You should note that bankruptcy allows for constructive fraud, meaning the court doesn’t have to prove that you intended to commit fraud. This occurs when you sell an asset for less than its fair market value during the “insolvent” period of bankruptcy. Essentially, you are considered insolvent when your debt is larger than the total value of your assets, which is assumed to start 90 days before your filing.
It’s important to understand that if the bankruptcy trustee assigned to your case determines a transfer to be fraudulent, they can void, or undo, the sale or transfer of an asset. As such, they will include it in your bankruptcy case. If they believe the fraud was intentional, they can petition the court to dismiss your case, which can result in criminal charges.
As the rules regarding bankruptcy can be incredibly complex, it is always in your best interest to connect with an experienced bankruptcy attorney to help guide you through this process. At Mudrick & Zucker, P.C., our team understands how complex these matters can be. Contact our dedicated team today to learn how we can assist you.
