Can a Car Be Sold Before Filing for Bankruptcy?
Plenty of car owners face financial struggles and consider bankruptcy. It’s one of the most common assets bankruptcy discussed during bankruptcy and can garner a significant resale value. It’s one of the first things a bankruptcy trustee will look at when evaluating your estate in Chapter 7.
There are also instances in which people sell their vehicles to pay their debts. After all, if you can survive without a vehicle and the vehicle is worth money, wouldn’t it be smart to sell it and use the proceeds to pay your past-due debt?
But are you allowed to sell your vehicle on your own before filing according to bankruptcy laws?
The answer to this question varies from case to case.
In most situations, if you own only one vehicle, you’ll choose to exempt it in bankruptcy. Most people rely on their primary vehicles to get them to and from work and other locations, so it’s important to protect it from the bankruptcy trustee. As long as your vehicle doesn’t have an above average value this probably won’t be a concern.
To learn more about exempting assets in general, check out this article from The Balance.
Selling a Vehicle before Bankruptcy
If you own a second vehicle or you’ve decided you truly don’t need a personal vehicle for your day-to-day life, the situation is a little different.
Selling a vehicle prior to filing for bankruptcy is considered a pre-bankruptcy transfer of property, which can attract the attention of the trustee and potentially put you at risk for accusations of fraud.
When determining whether a pre-bankruptcy transfer was inappropriate, the trustee looks at:
- Whether or not the property would have been exempt had it not been sold
- How much money you received in the sale
- Why you chose to make the sale
- How the proceeds from the sale were used
Chances are if the vehicle would have been exempt and you received fair market value for the sale, it’s unlikely there will be an issue other than waiting for the trustee to investigate these issues.
If the vehicle would not have been exempt, the investigation is going to be more in-depth. If the sale was not for fair market value, there’s a good chance the trustee will undo the sale or force you to pay the fair market value to the estate.
Trustees also consider the intent of the sale by considering who purchased the asset.
For instance, if you sold your vehicle for well below fair market value to your sibling, it’s going to seem as if you were trying to conceal the asset from the bankruptcy court. On the other hand, if you sold your vehicle for fair market value to a stranger and used the proceeds to pay your bankruptcy filing fees, they’ll view your actions in a more positive light.
Why You Need to Work with a Bankruptcy Attorney
If you’re considering filing for bankruptcy and would also like to sell a vehicle or any other valuable asset before filing, it’s essential you work with an experienced bankruptcy attorney. Trustees have the authority to look back several years into any transfers of assets and at a minimum, they’ll go back two to five years.
Having an attorney on your side makes the important decisions you face prior to and during bankruptcy a little bit easier. People consult attorneys before making a variety of significant financial moves and filing for bankruptcy should be no exception.
If you’d like to know more about transferring assets or you have questions about bankruptcy, contact the Law Office of Robert M. Geller at 813.254.5696 to schedule a consultation.