Post-Petition Property Transfers
Every so often clients will ask me if they can sell, give away, deed, or transfer property after their bankruptcy is filed. I’m glad that they ask, because the consequences for a prohibited post-petition property transfer are steep.
Let’s quickly review how property works in bankruptcy. Once you file bankruptcy, all property becomes property of the bankruptcy estate. Exemptions allow you to protect equity in property, so that you can get a fresh start after the bankruptcy is completed. For example, if you have a house that is worth $200,000, and you have a $175,000 mortgage, then you have $25,000 in equity. That equity is 100% protected by the Washington State homestead exemption; and the trustee cannot force you to sell your house. However, you cannot sell the house or deed the house while you are in bankruptcy, unless you get written permission from either the court or the trustee.
You should get written permission to sell, give, transfer, deed, or transfer property as long as your case is open. So how long is your case open? It depends on the chapter you file.
If you are in a chapter 7 bankruptcy, your case is usually open for about 100 days. It is important to distinguish between getting your discharge and having the case closed. You get your discharge about 90 days after you file. The discharge is what removes your legal obligation to pay pre-petition debts, but it does not close your case. The case is closed when the trustee files a no asset report or a report that the administration of the case is completed, and the judge approves the report. Until the judge approves the report and the case is closed, the bankruptcy estate remains in existence.
If you are in a chapter 13 bankruptcy, the case will remain open until all of your plan payments are complete. Then the trustee will process a final report. Until the judge approves the final report and the case is closed, the bankruptcy estate remains in existence.
Depending on what you are proposing to do, getting permission can be as simple as having your bankruptcy attorney send an email to the trustee and wait for the trustee’s written response. In some cases, you will have to file a motion with the court. The bottom line, however, is that as long as your bankruptcy case is open, you must have proof that you got written permission from either the trustee or the court to give, sell, deed, or transfer any property.