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.