Can You Sell Stuff Before a Bankruptcy?

Image source: giuliana_miranda via Flickr Creative Commons

Selling your stuff pre-bankruptcy is okay if you follow some rules

If you are struggling financially and are looking for different solutions to help get you out of your debt dilemma, you may be thinking about selling off some of your stuff to raise money to pay bills. If you think you may want to file bankruptcy in the coming months, you must carefully consider how you go about disposing of your property and how you use the money you raise from these transactions. Here are four things to think about:

#1 Sales price

If you are going to sell off any assets, it's important that you do it at fair market value. This is important for two reasons. First is that if you're going to let go of your goods, you need to get the best possible price so that you can pay down as much of your debt as possible. Second is that if you sell an asset for less than market value, this can be considered a fraudulent transaction. For instance, selling something of value for just a little money to a friend or family member can be considered an act to defraud your creditors. Even if you didn't intend to cheat your creditors, you can still be in trouble for divesting yourself of assets for less than fair value.

#2 Paying secured creditors

If you do raise money to pay down bills, you must be careful how you prioritize them when you distribute the proceeds of these sales. Creditors are prioritized in bankruptcy and you must be mindful of this when you pay out. If you're behind on child support or alimony, this is a great place to start playing catch-up. Domestic support obligations carry the highest priority in bankruptcy. If you owe fines or fees to a court, these are non-dischargeable in bankruptcy and have priority. Back taxes that are non-dischargeable are also not a bad choice.

#3 Paying unsecured creditors

Paying unsecured creditors is not a good idea. In fact, once in bankruptcy, your Trustee will likely go back to these creditors and demand the money so they can apply it to secured priority creditors. However, what you can do is pay living expenses such as your utilities. If you're behind on your utilities, catching them up is definitely okay. Because you're entitled to living expenses, this is not a conflict, but paying back domestic support orders should be prioritized before you look at pre-paying advance months of living expenses.

#4 Transactions between friends or family

If you owe money to friends or family members, you may think of them first when you've got cash in your pocket from selling off some of your stuff. As tempting as it may be to take care of these very personal debts, you simply can't prioritize them. Even if your Mom and Dad are threatening to disown you over money they loaned you last month or last year, you simply have to tell them to hold off. If you do pay off people close to you and then file bankruptcy, this will be considered a fraudulent transfer and the Trustee will demand the money back from your relatives or friends to give to priority creditors. That will make Mom and Dad even more unhappy than if you just paid them later.

If you're thinking about filing bankruptcy, even if you're not sure if you're ready to do it now, come into the offices of John T Orcutt for a free consultation and we can give you some pre-filing advice to protect yourself from trouble later and explain the pros and cons of Chapter 7 versus Chapter 13 for your particular circumstances.