If I Sell My House Less Than One Year Before Filing Bankruptcy, Do I Have To Keep Records of What I Do With the Money?

27 Feb If I Sell My House Less Than One Year Before Filing Bankruptcy, Do I Have To Keep Records of What I Do With the Money?

I met with a potential bankruptcy client today who sold her home 6 months ago. After paying the mortgage and closing costs, she walked away with a check for $17,000.

If she used that money to pay her living expenses, perhaps purchase some furniture, fix her car, buy an older car, or pay her moving expenses, she would be fine, even if she had to file for bankruptcy 6 months later . Rather than depositing the money into a bank account, and then writing a check for each purchase or payment, she cashed the $17,000 check, and didn’t keep any records of what she did with the money. This may well present a problem if she is going to file a Chapter 7 bankruptcy.

The fact that she sold the home will appear on her bankruptcy petition of the Statement of Financial Affairs. The trustee will ask her about the sale, and want to see the closing statement. The trustee will want to see where all the proceeds of the sale went. He or she will need to see that the mortgage that was paid off was properly filed in the county clerk’s office. The trustee may want to see the canceled checks from the closing.

But the trustee will especially want to see proof of what she did with the $17,000 that she turned into cash. Unless she kept all of her receipts (which I do not believe she did), the trustee may end up objecting to her receiving a discharge. The discharge is the whole point of filing bankruptcy in the first place.

Why does the trustee care about all of this? First of all, if she paid off a mortgage that was not properly perfected, the trustee may have the ability to recover the money from the mortgage company. Secondly, if she used some of the $17,000 to pay off a relative, or gave some of it away, or did any number of things that would have left it unprotected, the trustee could go after the money from the relative or person she gave it to, and/or could make a motion to deny her discharge.

Do yourself a favor. Even if you never think you will ever file for bankruptcy, don’t ever get a large sum of cash and spend it without keeping some sort of accurate, verifiable records.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.

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