How the sale of property is handled depends on who you sold it to and whether you received the market value price.
- Sale for Market Value. All property should be sold for market value (what you’d expect to receive from an auction, garage sale, or classified ad) with the sale reported on the bankruptcy schedules. This is definitely the best approach.
- Sale for Less than Market Value. You will have to disclose such a transfer on the bankruptcy schedules. This risky approach will invite major scrutiny by the bankruptcy court. In this instance, the court has the power to collect from, even sue, the purchaser for the difference between the market value and the amount you received from the sale.
- Sale to a Family Member. This too will need to be listed on the bankruptcy schedules. The bankruptcy court will definitely take a very close look at this type of transfer. Unfortunately, the court will probably assume that you sold the property for less than market value. So, plan on providing evidence to the contrary. Here again, the trustee has the power to collect and sue for the difference.
Retaining Funds from the Sale
To retain your money from the sale, you need to find an exemption to shield your cash.
- If you sold your home, the money would be exempt (up to $60,000) for a period of 6 months if it is segregated in a separate bank account.
- For all other property, a car, for example, the money would not be exempt unless the bankruptcy filer has some exemption large enough to protect the cash.
- If your cash won’t be exempt, use it to buy property that will be exempt. For example, if the cash from your sale exceeds your personal property exemption ($2,500), then use some of the money to buy a small freezer and fill it with frozen food.