Can you sell a spare car before you file bankruptcy?
Image by Tim Mossholder via Unsplash
When you’re struggling with debt and falling behind on payments, one thing you might consider is selling off spare stuff to try and cover your bills. At the same time, you might be thinking about North Carolina bankruptcy. If you have a car that you're not using and want to sell it, this could affect your bankruptcy case. So, can you sell your car before filing bankruptcy? It depends.
The Court Considers Past Actions
Generally, when you file for bankruptcy, the Trustee assigned to your case may examine your transactions the few months before you filed. However, the look-back period can extend as far as two years. Any sale or transfer of property in those two years could be scrutinized to ensure you’re not trying to cheat the system.
You can sell assets but only under certain conditions. The guiding tenet is fair market value. If you sell your car for far less than it’s worth, that may signal the court that you’re trying to cheat the system. But if you sell the car for market value (or better) and use the proceeds to pay living expenses, you should be okay.
You Can Protect Your Car In Bankruptcy
North Carolina bankruptcy exemptions allow you to shield a reasonable amount of assets so that you can live your life. You can protect a vehicle with equity of $3k or less. If you have a second vehicle, that’s another consideration. There’s no automatic exemption for a second car, but you might be able to apply the wildcard exemption to cover it.
The wildcard exemption can protect any assets worth up to $5k so long as you have that amount left over from your homestead or burial exemption. If the car would be exempt at the time you file bankruptcy, then you should be okay to sell it, so long as you use the proceeds in a way that doesn’t raise red flags.
What Was Your Intent?
If the Trustee looks back at your vehicle sale, one consideration is your intent when you sold it. If you were trying to hide an asset and cheat the system, that’s an obvious problem. It also matters to whom you sold the car and for how much. If you sold it to a related party, such as a friend or family, that’s already a suspicious transaction.
How Much Did You Get For the Car?
If you sold the vehicle for less than market value, that’s a second red flag. The Trustee and bankruptcy court want to ensure that you were paid fair market value for the sale of the car. A shady sale raises the presumption that you sold the car to try and shield it. The sale could be revoked, or you could be made to pay the fair market value to your bankruptcy estate.
How Did You Spend the Money?
Then there’s what you did with the money to consider. Did you use the proceeds to repay a personal loan to a family member? Did you use the money to buy a flat screen TV or take a vacation while your bills were going unpaid? These types of transactions are problematic. However, if you spent the money on reasonable living expenses, you should have no problem.
The crucial issue is your intent. If you’re trying to defraud the court, it’s the Trustee’s job to sniff out sketchy actions. If the Trustee decides you tried to cheat the court, they can roll back the transaction, undo the sale or demand you cough up that money and give it to your creditors. Even worse, you could be charged with criminal bankruptcy fraud.
If you’re considering bankruptcy and want to sell some assets, you’re best served by speaking to a bankruptcy lawyer before you sell anything. The initial consultation should be free, so there’s no reason not to get advice that could save you some trouble. To find out more, read reviews and then contact the Law Offices of John T. Orcutt.
Call +1-919-646-2654 now to schedule a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.