Find out if you are allowed to give away property or other assets before going bankrupt. Is it possible to protect your house, car or other items by signing them over to someone else?
Use this guide to understand the rules and what you can do to protect your valuable belongings.
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Is it possible to give away your house before going bankrupt?
If you have equity in your house, you might think you can protect it by signing it over to someone else before you go bankrupt.
Unfortunately, doing this within 5 years of your bankruptcy start date will not work. The reason is that it would be a transaction at under value. In other words you gave away property for nothing in return.
In these circumstances, the Official Receiver (OR) can overturn the transaction and still claim your share of any equity. The other party will have to pay this by raising the required cash. If they are unable to do so, the property would have to be sold to release the equity.
Generally speaking if you have a significant amount of equity in your home, bankruptcy is unlikely to be a sensible option for you.
When is giving away your home before bankruptcy OK?
There are two scenarios where you are allowed to give away your property before you go bankrupt:
- The first is if you are required to give away your home by Order from the Court as part of a divorce settlement. Transferring your home to your ex in these circumstances would not be a transaction at undervalue. This is because you would have received something in return – for example you retained full rights to your pension. As such, the OR is not able to overturn it.
- The second is if you transferred your interest in the property to a third party 5 years or more before the date of your bankruptcy. This would then fall outside of the ‘transaction at undervalue’ rules as long as you weren’t insolvent at the time the transfer was completed.
Could you give away your car before bankruptcy?
You can’t give away an expensive car to protect it before going bankrupt. If the vehicle is worth any more than £1500, this would be considered a transaction at under value.
The Official Receiver would demand the return of the vehicle from the person you gave it to. If they no longer have it, they would have to return the monetary value at the time you gave it to them.
The same would happen even if you have given away your vehicle to settle a debt you owed. This is because the Official Receiver would claim you had made a preferential payment – paying back one creditor before others before going bankrupt. The person you gave the vehicle to would still have to return it.
What can you do if you want to keep a car worth more than £1500?
If you want to keep a vehicle worth more than £1500, you do have some options.
Option 1:
You will be able to keep your vehicle if a third party is able to pay the difference to the Official Receiver. So if your car is worth £3000, a friend or family member can pay the OR £1500 to buy back the financial interest. You can then keep the car.
They will normally have to pay the money in full within a month of you going bankrupt.
Option 2:
Sell your car to a friend or family member before you go bankrupt. They can then lend it back to you to continue using.
You need to sell for market value (based on an on-line valuation). In addition, you need a record of the funds being paid into your bank account. The money you receive can then be used to pay for your bankruptcy or other reasonable household expenses.
Thinking about selling your car before going bankrupt? Get in touch with us today for further advice.
Are you allowed to transfer money to someone else before you go bankrupt?
You must not give away any significant amounts of cash before you go bankrupt. This is because it would be a transaction at undervalue. The Official Receiver will require the funds to be returned.
If the person you gave the money to has already spent it, the OR can start legal action against them to enforce repayment.
You can use any funds you have to buy legitimate goods or services before going bankrupt. However, you need to be ready to justify the expenditure. If any item you have bought is particularly valuable, you may have to hand it over to the Official Receiver.
Can you pay back debt to family or friends?
You can’t pay back money you owe to an individual (such a friend or family member) before you go bankrupt. This is because it would be a preferential payment.
In other words, you are putting them in a better position than all the other people you owe money to.
The OR will regard any money you repay in this way (within 2 years of going bankrupt) as preferential. On this basis, they can contact whomever you paid and demand the money back. The OR can take legal action against that third party to enforce the repayment if necessary.
You may not have intended to pay back your friend or family preferentially. Perhaps it just seemed the right thing to do. However, as far as the OR is concerned, the reason for the payment doesn’t matter. It still has to be returned.
Should you give away household items before going bankrupt?
Generally speaking, you do not to give away any of your household belongings to protect them from your bankruptcy. You will normally be able to keep them all (as long as you don’t own anything of excessive value).
This means you can keep all of your electronic goods – your TV, laptop, Ipad and mobile phones. Your white goods such as a fridge freeze and washing machine are also safe as well as all your clothes, furniture and children’s toys.
The only time when the Official Receiver has any interest in any of your belongings is if the second hand value of any individual item you own is more than £500.
However, other than your car (discussed above), the fact is that you will almost certainly not have anything worth this much second hand. Even if you have just bought a TV using store finance. You can keep the TV and the finance is included in the bankruptcy.
Written by James Falla
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