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Can I sell my car at fair market value before filing Chapter 7 bankruptcy?

Maspeth, NY |

I recently gave a down payment for a bankruptcy lawyer's services. I still owe a balance. He told me that he would file my case as soon as he received my final payment. I am on disability and having a tough time financially. I could not afford to keep my car anymore (i.e. insurance and repairs). I recently sold my car to a relative at the fair market value and am using the money to live off of.

Today I received a letter from the attorney saying that before filing I cannot transfer the vehicle to a friend or relative. He said that if I did that the trustee could sue the relative for return of the vehicle. I didn't just transfer the title; I actually had to sell the car. Is this going to cause me any problems? I want to file my Chapter 7 case and be done with this horrific experience promptly.

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Attorney answers 4

Best Answer

I don't like contradicting your attorney who is there and who knows your circumstances, but if you actually sold the car for fair market value, and you can show the trustee that you did, then I cannot see a problem. Why would the trustee sue the buyer for the return of the vehicle if he/she paid you fair market value? You converted the property into cash at fair market value, regardless of who you sold it to, and then you paid your attorney and are living off the balance. I don't see any problem with that. You definitely will have to explain it to the trustee and prove the value of the car, though.

Besides, you have already done it. Life goes on. Tell your attorney to proceed and you will account to the trustee for the cash you received for the car.


I agree with Mr. Picchi. The provision of the bankruptcy code that we are dealing with is section 548 of the bankruptcy code. This allows a bankruptcy trustee to undo (or avoid) a transaction where property is transferred for less than a fair payment. Even if a payment is not equal to the value of the property that was sold, the trustee can only undo the transaction. Thus if your relative had not paid a fair price for the vehicle, the trustee may be able to recover the vehicle, but would be required to pay to the relative the amount actually paid by the relative for the vehicle.

Debtors must disclose all sales of property within one year of filing. Purchasers might need to prove that they actually paid for the vehicle and that the debtor did not return that money to them. Transactions shortly before filing, especially with relatives, are always suspect by trustees, so it is important to document such transactions carefully.


I believe the direction your attorney gave you by letter is that you should avoid making a "fraudulent transfer" of your assets.

A fraudulent transfer is when someone, prior to filing for bankruptcy, gives away a valuable asset or sells it for substantially less than what it is worth.

There is nothing wrong selling a vehicle for fair market value, even to a relative. However, trustees scrutinize sales to relatives much more closely. Therefore, you should be prepared to demonstrate that you sold the car for fair market value. You will also want to keep a good paper trail of how you spent the money.

You attorney was concerned about clients who give away assets to relatives without getting "reasonable equivalent value" in return.

You can show what the car was worth by clipping recent ads for similar cars listed for sale in a local newspaper or by going to an established web site like Kelley Blue Book ( and print out their valuation.

To read more about selling or transferring assets prior to filing for bankruptcy, please see the article below:


Greetings from my old neighborhood. I grew up in Maspeth and spent the first 23 years of my life there.

The sale is a gray area. If you have a bill of sale and can print out the valuation from Edmond's or NADA or equivalent and that is what you based the sale on, you should be OK. But, I really don't want to give any advice contrary to your current attorney, and time is on your side. The more time between the sale and the filing, the better.