Legal Question in Bankruptcy in New York

I live in NY state and have been talking with a bankruptcy attorney. I have $35K worth of credit card debt, along with rent, utilities, student loans, and a wife and two daughters. I work full-time and am going to grad school full-time. I have not been able to pay my credit cards since 9/09. In 2002 I bought a two family house with my (now) ex-wife, and a year later my parents moved in to the second apartment. in may of 08 my wife and I divorced and we sold the house to my parents. The house was a appraised at $120K and we sold it to them for $95K. It was the most they could afford, and neither my ex-wife nor I wanted the hassle of putting it on the market and selling it to a stranger. Mostly, my ex-wife wanted her money and I didn't want to fight her, and I knew if I sold it to a third party, my parents would end up having to pay a lot more in rent or they would be asked to move out. Trying to be a nice guy to my parents and my ex-wife, we sold it to my parents for less than it was worth. Again, that was in May of 2008- over 2 years ago.

Since we gifted my parents $25K in equity, my bankruptcy attorney is afraid that the trustee will think this was a shady deal and go after my parents for my half of the $25K gift of equity that was given to them. so, he is suggesting a chapter 13 instead.

So, my questions is- is the fear my attorney has about the trustee going after my parents valid?

The only reason I ask is I have mentioned to another attorney that there may be an issue with the sale of the house effecting my chapter 7 bankruptcy (please note- I did not go into the specifics with this attorney) and they said that because it was over 2 years ago, there would be no problem.

I would really prefer to file chapt. 7 instead of chapt. 13 but, I really don't want the trustee to go after my parents if I do.

Any advice would be greatly appreciated!


Asked on 6/28/10, 8:26 am

1 Answer from Attorneys
Michael Fakhoury Law Offices Michael Fakhoury

Hello,

First, a Chapter 7 Trustee can reverse what is called "fraudulent transfer" of assets for as long back as 6 years. However, considering today's housing market and considering the relatively small difference between the market value and sale value of the house to your parents, I do not believe a trustee will have an interest in reversing the transfer. Further, in the unlikely event the trustee does have an interest in the difference, you can always transfer your Chapter 7 Case to a Chapter 13 Case. The Chapter 13 Trustee cannot force your parents to pay anything or force a reversal of the transfer. In sum, I would suggest you file a Chapter 7 Case.

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Answered on 6/28/10, 12:00 pm


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