Tom in Austin

A hypothetical for the legally-minded ... suppose you found the 'deal of a lifetime' on a 928 from someone who stated that they needed to quickly raise cash, were about to lose their home in foreclosure, etc.

So you complete the transaction with a clear title (no lien) and register the car in your name, but in the meantime, the seller has declared personal bankruptcy. Under clawback rules, can the court void the sale and take the car back in order to pay off creditors?

Is a properly-documented, arms-length transaction a complete defense against a clawback claim?

SeanR

I would think if you have a bill of sale and the title, there would be no issues.

Landseer

Ditching assets has to be a common issue.

What would prevent a creditor from chasing the recipient of the assets for the difference in value?

Bigger problem might be in the valuation.

For instance I have 5 of these in the signature block. Total value is 5 * $900 = $4500 according to my state's property evaluation, but mkt value is more like $25000 for the whole lot as-is. Max.

A creditor with a green visor in another state might think I've got $100,000 worth of cars. Not true, unfortunately.

dr bob

In any valuation discussion like that, when someone feels that an asset is worth a lot more than I do, they can go ahead and buy it from me for that value. It only seems fair.

In the stated case, I suspect that it would be up to the jilted creditors to determine that there was some extra value somehow realized from the emergency sale prior to bankruptcy, something they don't get to "attach" anyway. Plus, right up to the time of the bankruptcy filing, the seller's free-and-clear assets are his/hers to do with as they may please. If the asset is pledged against a debt, all bets are off of course.


!!! I am not an attorney and don't play one here or on TV. !!!

James Bailey

Lifted from Ehow..."Decide when you need to file bankruptcy. According to federal bankruptcy law, you may not transfer any property, money, or other assets whatsoever within 30 days before declaring bankruptcy. You are also required to declare any transfers of property made within 24 months (under federal bankruptcy law--individual states may differ) before declaring bankruptcy, which means that the court can (and most likely will) research each property transfer to determine whether you made it in good faith. If you were insolvent when you made the transfer, became insolvent as a result of the transfer, or received significantly less in payment than the item was worth, then the court will likely deem it fraudulent and will not only credit the full value of the asset to you, but will not allow you subsequently to declare it in your bankruptcy proceeding. The courts may also choose to prosecute you for fraud if they feel that you have intentionally tried to abuse the bankruptcy system. " The hypothetical prior owner appears to be the one with potential problems......

Asquared

I used to do valuation work related to bankruptcy, but I'm NOT an attorney so what I'm about to say is NOT legal advice and you should obviously discuss this with your attorney. There is a legal concept called Fraudulent Conveyance. In order for a transaction to be a fraudulent conveyance, the transferor has be insolvent before or after the transfer (assets worth less than liabilities) and the transferor must have received less than "reasonably equivalent value."

In other words, if I sell my Porsche for a dollar, the bank doesn't care if I can still pay my mortgage. If I can't pay my mortgage, but I sell my Porsche for market value, then the bank is no worse off. However, if I can't pay my mortgage and I sell my Porsche for a dollar, then the bank is harmed.

The key question here is, was what you paid "Reasonably Equivalent Value"? As you can imagine, your perspective on reasonably equivalent value is influenced by whether you are the bank, the P-car seller, or the P-car buyer, ie, this is hotly contested issue. Many would argue that unless the company is on their deathbed (they will be forced to liquidate within days), then the appropriate standard of value is market value (ie, not wholesale or fire-sale value). If you paid less than market for the car, and knew it was less than market, then the transaction is at risk of being considered a fraudulent conveyance. If you did not know the person before the sale, and the car was marketed and you gave the highest offer in the short marketing period, you have a decent argument that you gave reasonably equivalent value, but it is not a slam dunk.

The court can void a transaction if it is deemed fraudulent conveyance, ie, give you back the cash and take the title to car back.

Tom in Austin

So the worst case is the court undoes the sale and you get back what you paid. Then they can sell the car at a market value for the benefit of the creditors ... that seems reasonable.

S4ordie

Tom, I'd post this in the OT section. There are a number of attorneys who hang there and ofen provide good legal advice.

Landseer

I'd also be real careful that you don't overestimate the value of the car you might be considering in your moment of stealth. Real careful, as things aren't always as they appear. Whichever car, whatever brand, be sure to have an independent view if the money is substantial. Or if the perceived value by a number cruncher might be out of line with the real value.

Daniel Dudley

928 purchase prior to bankruptcy ?

Sounds about right.

Tom in Austin

Well, sale prior to bankruptcy, that says it a little better ...

Ivanhawk

Oh! we are talking car here which is prior on how to prevent it putting into bankruptcy.We must take some action upon it having a bankruptcy attorneys must the big help for us on how to make our car for long last. To prevent our things not far from us or shall we say if we are facing bankruptcy maybe our properties will be affected.

Dave928S

WTF .... must be a new dialect of chinglish I haven't mastered yet

linderpat

If you are really smart, wait untill the seller files, then buy it from the trustee at a firesale price. They don't like to screw around with these kinds of assets, especially a limited market old supercar.
So long as you are not in cahoots with the seler in an attempt to defraud the seller's creditors, you can safely buy the car and it won't be set aside as a preference deal. If it's truely arm's length, then it's not your issue, and a clear title will protect you. After all, how do you really know when or even if this guy will file? He may never file. Not your problem.

Tom in Austin

FWIW, I cannot imagine a trustee going to the expense and effort to void a sale and buy back a car. All the costs to get the car returned, re-titled, stored, prepared for sale, advertised, etc. would surely outweigh any modest increment of 'market value' they thought was lost in the original transaction.