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

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.