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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38911
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I have a situation with not knowing what I can do. I am pretty

Customer Question

I have a situation with not knowing what I can do. I am pretty much disabled and have not been able to work for a year. We built a nonprofit organization and was able to sell the building for $175,000. We are going to need to file bankruptcy because I can't work any longer. I do want to sit as president over the organization in a cunsulting position. Our personal bills are $100,000+. I live in Michigan and my question is wanting to know if we used the money to buy a place in Arizona and move the nonprofit there, can we still get out from under the debt and keep the nonprofit money for a home base in Arizona?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 7 years ago.

The nonprofit is a separate entity. As long as the resources remain separate, it will not be subject to the bankruptcy court. So, if the building proceeds are part of the nonprofit, then there is no risk, andyou can move the nonprofit wherever you wish.


But, if you use the nonprofit proceeds to purchase a personal residence, then the bankruptcy trustee will attempt to prove a fraudulent transfer, and seize the money to pay your creditors.


Hope this helps.


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Customer: replied 7 years ago.
Is it possible that we could have a place where we live along with have a place to meet and to conduct organization business?
Expert:  socrateaser replied 7 years ago.

To the extent that you use the property as your principal residence, you probably would violate the nonprofit tax laws. And, the bankruptcy trustee would almost certainly attempt to prove that the entire transaction is a sham, intended to avoid your creditors.


You can certainly try this gambit, but I can't imagine it being sucessful.

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Customer: replied 7 years ago.
Would the fact that this is an ecclesiastical nonprofit make a difference, because there is almost always a home in connection with the business.
Expert:  socrateaser replied 7 years ago.
If you have a board of trustees and they deterimine to provide living space for you, then that could provide evidence that you are not trying to play games. But, if you control everything, then I don't believe that you will be able to convince a court that this is a bona fide transaction.
Customer: replied 7 years ago.
Thank you very much. We are not trying to take advantage. We have worked so very hard to make the business work. Our credit was run up just trying to survive. We have spent our lives with good credit and never expected this. We hope to try one more time in the phoenix area. We are Jewish people who believe in Y'shua and feel very strong about what we are doing. We will only use the money to have a place to continue the organization along with a parsonage. NO MORE CREDIT. We will live on what we have. Do you think it will be OK?
Expert:  socrateaser replied 7 years ago.

I cannot evaluate your probability of success. As I said, if you have a board of trustees, who control the nonprofit and they permit you to reside in the property, then that would probably avoid an adverse outcome. But, if the bankruptcy trustee believes that your activity is a sham, then the nonprofit will be sued for a fraudulent transfer, and to disgorge the assets to the trustee.


Best of luck.

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