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Sunday, February 23, 2014

A question of BANKRUPTCY -- can you hide an asset?

I was discussing bankruptcy on an Internet legal site, and was asked the following question:

Question:
If a family member is on the verge of bankruptcy, can I purchase their house for the small amount still owed to the bank and have the house exempt as an asset when they declare bankruptcy? Or, would this be considered conspiracy to commit bankruptcy fraud?

My answer:

There is no conspiracy here!

Interesting idea, though. Generally, when a person declares bankruptcy, any asset is fair game for creditors. If the house in question has a good amount of equity, and the person declaring bankruptcy sells it for "a song" just before declaring bankruptcy, the trustee will yank it back (generally, a sale within 2 years of bankruptcy will be scrutinized -- beyond that, only if one of creditors ask for an investigation).

He or she will void the sale and take possession of the property in the interest of the other creditors. Now this is just a general overview -- there are exemptions (called "homestead") at both the state and federal level (you must choose one, not both), and there are certain protected transactions.

The bottom line, however, is before someone declares bankruptcy, they should consult a qualified professional to make sure they don't step on a landmine. If you need help with your bankruptcy, or advice on how to proceed, feel free to give us a ring! We have considerable experience in tax, bankruptcy an maximizing exemptions for both!

http://www.hanoverlawpc.com
703-402-2723

Sean R. Hanover, Esq.
Principal Attorney
The Hanover Law Firm is located in Washington, DC and Fairfax, VA. We practice
in both state and federal courts in VA, MD, and DC.

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