Having been unemployed for some time, you have accumulated a lot of debt and are now behind on paying those debts. You are considering filing bankruptcy, but happen to have two vehicles that are paid off and want to sell one of them. Can you sell one of those vehicles and then file a Chapter 7 Bankruptcy? The short answer is it depends, and this is why.
Selling one of the vehicles would be considered a pre-bankruptcy transfer of property, and there are several factors that determine whether a person can complete a pre-bankruptcy transfer. Your bankruptcy trustee will look at whether the property in question would have been exempt when you filed your bankruptcy, the price you received for the property, how those proceeds were spent, and the reason for the transfer.
If the property would have been exempt when you filed bankruptcy, then transferring the property prior to filing bankruptcy should not be an issue. However, it could cause a delay in the bankruptcy process as your trustee makes this determination. Your trustee will want to make certain that you received the fair market value of the property and that it was in fact exempt. In Florida, a debtor is allowed $4,000 in personal property and $1,000 in a motor vehicle if they do not claim the homestead exemption. If a debtor claims the homestead exemption, then they are only allowed $1,000 in personal property and $1,000.00 in a motor vehicle.
BUT, if you are planning to file bankruptcy and the property would not be exempt in bankruptcy, then you need to proceed with much caution. It is best to first speak with an attorney before making any pre-bankruptcy transfers. Your trustee most definitely will investigate the transfer and will pay close attention to when the transfer was made and the proceeds received from the transfer. If the fair market value was not received, then the trustee may undo the transfer or make you pay the fair market value of the transfer to your bankruptcy estate. The trustee can also look into certain types of transfers from as far back as ten years ago. However, they most commonly only look back two to five years in Florida.
Another thing your trustee and the court will look into is your intent at the time of the transfer. Your intent can be inferred by looking at who you transferred the property to, did you try to conceal the transfer, what was your financial situation when the transfer occurred, etc.
If you use the proceeds from the transfer of non-exempt property to increase the value of your homestead, such as by paying down the mortgage or making improvements, the court can look back 1,215 days. Without having to look at your intent, the court can then reduce your homestead exemption by that amount. Luckily, however, using such proceeds to make normal mortgage payments or normal maintenance and repairs should not be an issue.
Despite the type of property you are looking to transfer prior to filing bankruptcy, it is best to consult with an experienced attorney. Speak with the Law Office of David M. Goldman, PLLC at 904-685-1200 for a free initial consultation.