What is a PREFERENTIAL TRANSFER TO AN INSIDER? Or, can I sell my condo to my sister for a dollar and declare bankruptcy?

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If you sell any property to someone for less than close to what it is worth (Full Market Value), and then declare bankruptcy, the bankruptcy trustee may view it as a Preferential Transfer to an Insider / FRAUD. An nd, pull the property back into the bankruptcy estate.

Pretend you and your sister, brother or other relative bought a condo on a beach in Florida in 2014 for $100,000. You both put in $50,000 and both own 50%.  It is now 2018, and you are thinking about declaring bankruptcy and want to get rid of the condo first.  If the condo is now worth $200,000 your sister would need to pay you $100,000 for it to be considered a full market transfer.  If she only paid you one dollar the trustee would look at it as a fraudulent transfer with you trying to avoid paying your creditors.

Now let’s say the condo flooded, and $100,000 worth of work needs to be done. The condo’s current value is $10,000, but $100,000 in insurance proceeds are coming.  The insurance money could be brought into the bankruptcy estate.  So your partner in the property could still not buy the property for $1 without exposing you to a fraudulent transfer.

Now let’s say the condo is invested with roaches, has become a crack den, and is valued at $10,000.  Now an argument could be made that selling it to your co-owner for $1 was a good deal for you.

If you have any questions about fraudulent transfers to insiders or PREFERENTIAL TRANSFER  talk to a Bankruptcy Attorney today at 844-533-3367.

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