Dear Bankruptcy Adviser,
Some years ago my husband and his two siblings received a piece of property from their parents. My husband and I are in the process of filing Chapter 7. Is it true that there is no way we can keep this property at this time? We were told that it didn't matter if it was an inheritance or not, and that it did not matter that his two siblings own a part of this property. We were told that if you own it, it can be taken, sold and applied toward our debt. Help.
You received good advice. Filing for Chapter 7 bankruptcy could put the inherited land at great risk. Chapter 7 is a total liquidation of debts and assets. If you have assets that cannot be protected, those assets will be sold and the proceeds given to creditors. Each state bankruptcy law is different so I cannot say whether none, some or all of the property is unprotected. However, the property would need to be disclosed as an asset of your household and listed in your bankruptcy petition.
3 common property missteps in bankruptcy
- Transferring the property out of your name.
- Selling the property to family for less than fair market value.
- Filing for bankruptcy and failing to list the property.
Here are 3 common property missteps in Chapter 7 bankruptcy:
1. Transferring the property out of your name before filing for bankruptcy. You would have to wait a minimum of four years to file after transferring the land. And it's possible the transfer will always be considered fraudulent since you did it for the sole purpose of keeping it from creditors.
2. Selling the property to a family member for less than fair market value. It is legal to sell the property to someone -- even a family member -- for the fair market value. But the person assigned to your bankruptcy case -- called a trustee -- will be very suspicious and will be able to reverse the sale if you did not get fair market value for the property. You must be very careful that the transaction can stand up to scrutiny.
3. Filing for bankruptcy and failing to list the property.
If caught, you will be permanently barred from ever filing bankruptcy on those particular debts. Or worse, you could spend some not-so-quality time in Club Fed. And you will still lose the property.
Now for a couple of options you can take:
1. Talk to a bankruptcy attorney. Yes, it may seem like I am trying to drum up business for colleagues. However, you don't need to hire the attorney, just get a consultation to review the bankruptcy laws in your state and determine existing options.
2. Speak with a financial adviser. You might be able to sell the property and pay off the debts, or you could settle the debts, paying less than you owe.
Bankruptcy may still be an option. You are permitted to file for a Chapter 13 bankruptcy and pay back some or all of your debt over the next three to five years. That would allow you to protect the land and pay off some or all of your debt. For example, if you cannot protect $20,000 of assets, in this case land, then you could pay back $20,000 over the next three to five years in the Chapter 13 bankruptcy and protect the land.
You have options. Most people would prefer your situation over having no assets at all. I know you are disappointed that you may not be able to keep the land and get rid of your debt. But don't compound it by committing fraud. Speak to a few professionals before making a final decision.
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