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Ask socrateaser Your Own Question
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38910
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I would to know: my wife and I live in Ca, we have 50 acres

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I would to know: my wife and I live in Ca, we have 50 acres of rural land in Az debt free (value @ 20,000.00), we would like to either deed it to our son who lives in Az as a gift or sell it to him at fair market value to pays off some debt. If we do this and then find we have to file Chapter 7 Bankruptcy in Ca what happens to the land or the transfer/sell? Or, what other options should we consider?

If you transfer the property to your son for "reasonably equivalent value" (i.e., $20,000), then the bankruptcy court won't think anything about the transaction. If you gift the property to your son, and then file bankruptcy within the next 12 months, the bankruptcy trustee can demand the property's return, or it's value if your son sells it.


And, if the trustee can't get the money back, he/she can request that the court dismiss the bankruptcy entirely.


This is because your property transfer, unless for value, is considered a means to "hinder, delay or defraud" your creditors, which is what the bankruptcy court likes least of all.



Customer: replied 8 years ago.
Ok, I understand... what if we sold the land to our son for fair market value with a down payment at 5,000.00 and a monthly payment at 125.00 for ten years, prior to the bankruptcy, what happens to the 125.00/month he would pay to us? Does the trustee take it or is it applied our monthly/yearly as income in the analysis for the purposes of chapter 7 vs 13?

If the transaction is based on the real cost of borrowing in the market, then the trustee can't object. Your actual "income" for the purposes of the bankruptcy calculations, would be based on the sales price minus your original basis in the land (what it cost you) + plus any interest on the $15,000 loan to your son.


The property needs to be appraised, so you can show what an arm's length buyer would have paid, and the loan needs to be at a fair market value interest rate.



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