Legal Question in Bankruptcy in Virginia

If a family member is on the verge of bankruptcy, can I purchase their house for the small amount still owed to the bank and have the house exemp as an asset when they declare bankruptcy? Or, would this be considered conspiracy to commit bankruptcy fraud?

Asked on 2/23/14, 7:58 am

2 Answers from Attorneys

Sean Hanover Hanover Law

There is no conspiracy here! Interesting idea, though. Generally, when a person declares bankruptcy, any asset is fair game for creditors. If the house in question has a good amount of equity, and the person declaring bankruptcy sells it for "a song" just before declaring bankruptcy, the trustee will yank it back. He or she will void the sale and take possession of the property in the interest of the other creditors. Now this is just a general overview -- there are exemptions (called "homestead") at both the state and federal level (you must choose one, not both), and there are certain protected transactions. The bottom line, however, is before someone declares bankruptcy, they should consult a qualified professional to make sure they don't step on a landmine.

If you need help with your bankruptcy, or advice on how to proceed, feel free to give us a ring! 703-402-2723.

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Answered on 2/23/14, 8:11 am
Daniel Press Chung & Press, P.C.

This would be a fraudulent transfer avoidable by the trustee, and because it is intentionally done to hinder delay or defraud creditors, there would not even be a statute of limitations to undo it in Virginia. As for conspiracy, contrary to the other answer, this could be deemed a conspiracy to defraud the bankruptcy estate and in fact result in a criminal prosecution. While this sort of thing standing alone is rarely prosecuted, that does not make it non-criminal. Bottom line, don't do it. There may be other more viable alternatives to protect assets as to which a competent bankruptcy attorney could advise the potential debtor.

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Answered on 2/23/14, 8:42 am

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