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Is it legal for someone who claimed a property exemption in a bankruptcy to sell that property before the bankruptcy is final?

Bankruptcy and Debt 6 views 3 answers
I am a creditor in a Chapter 7 bankruptcy case. The couple filing bankruptcy "gave" their secondary vehicle to a family member weeks before filing. Shortly thereafter they bought two other vehicles with cash. They owed enough on their primary vehicle that the value of the other two fell within the allowable exemption. The creditors received notification that the bankruptcy would be discharged, but the bankruptcy is not yet closed. I recently found out that the couple sold one of the vehicles and the other is currently for sale. It seems to me that the vehicles were purchased solely to tie up money that would have been outside the exemption. Is there anything that I can do about this, or is it perfectly legal?

Attorney Answers

3
Paula Sinclair ·
"Exemption planning" and holding assets in an exemptable form for the pendency of a bankruptcy is perfectly legal. The gift of an asset shortly before filing would have to be disclosed, allowing the trustee to evaluate the feasibility of a fraudulent conveyance action to recover the value of the car. Be aware that not all claims for recovery of property for the benefit of creditors is financially feasible; value may be modest and cost of recovery may be great. Best wishes for an outcome you can accept, and please remember to designate a best answer.
0 upvotes
Eugene Mogilevsky ·
Trustee would probably need to be notified of that. If foul play is suspected, trustee may be willing to investigate fraud, and if proven, discharge could be revoked.
0 upvotes
Steven Taylor ·
The "gift" of a vehicle to a family member would be reviewed by the Trustee to see if the unwinding of the transfer would bring a benefit to the estate. Exemption planning by purchase of the other vehicles is acceptable within limits (broad limits). Assuming no bad faith, as long as the Trustee has issued a no asset order - the Debtors have the authority to sell the assets. Even if the Debtors jumped the gun, absent bad faith, it seems to be a no harm no foul based upon the exemptions.
0 upvotes

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