As my husband, Typo Knig, mentioned in another thread, his parents have filed for bankruptcy.
While they don’t own much, there are a handful of items that have sentimental value and have some monetary value.
I’m well aware that if they gave them away now, there are ethical and legal issues at play. HOWEVER - could family members purchase those things? I would assume that the proceeds would go toward the bankruptcy estate, not the parents themselves.
Has anyone ever been in such a situation or read anything about the logistics of that sort of thing?
I’m in Canada, so it may be different where you are. Here, when you go into bankruptcy, the trustee is responsible for valuing and distributing the estate fairly amongst the creditors. If one of the family members wants an item, he would need an independent appraisal of its fair market value, and the trustee will decide whether to approve the sale. Chances are he’ll approve it, as the item would probably have to be sold anyways to provide cash to be distributed.
There are certain exemptions in bankruptcy, that is, certain property up to a certain value is exempt from seizure. Where I live, for example, household furniture up to a value of $4000 is exempt (i.e. the bankrupt gets to keep it). It may be that these items are exempt anyways and so wouldn’t have to be purchased.
When I did my bankruptcy 10 years ago, we didn’t have to sell anything. We didn’t have a lot, but we were able to keep everything, including the house, 2 cars and a motorcycle. They will need to talk to their trustee, as I understand some of the rules have changed.
Ethically, I see nothing wrong with a family member purchasing them. Legally, they should ask their lawyer. The answer might surprise you.
For example, when I declared bankruptcy, my lawyer told me to estimate the value my collectible Barbies as if I was selling them at a yard sale. This was years ago, so it’s not good advice for your parents. But it shows that the answer may not be what you expect.
I believe they are going Chapter 7 which is the one where they basically liquidate everything (aside from the homestead) and let you keep just a few thousand in property.
One of the annoying things with their being so closed-mouthed (heirloom-wise) is that if they’d said something earlier, they could have sold the things to the family (or gifted, though there are issues with fraudulent transfer if you do that just before filing). If they’d sold the things, that would have meant they could have benefitted. Now, I presume, all value would go to the bankruptcy trustee or whatever.
In a 7, The Trustee will look at anything outside the exemptions, which vary by state. Anything above that value is subject to sale, at the Trustee’s discretion.
If it is something he is interested in, he will generally get an outside appraisal, and will be happy to entertain any offers from anyone. Don’t call him to talk about buying something unless you know he’s interested! Often, he will file a Motion to Appoint a broker or appraiser, which will list the property he’s looking at. If in fact the items were valued by your parents at “yard sale value” (perfectly valid in most cases) you may tip him off to something he didn’t care about before.
Do NOT buy anything, transfer anything or otherwise make any move toward the property until its abandoned from the Estate. As of their fling date, whatever it is became property of the Estate, and you can get in Big Trouble if you exert “unauthorized control” over that property. Huge Trouble.
If they haven’t yet filed, don’t do anything either if bankruptcy is on the horizon. And transfer wild need to be disclosed on the BK, and the Trustee can go back at least one year to review transfers and make sure they were not fraudulent.
Yes, this is exactly why we wouldn’t want to do anything regarding having them gift us the items or anything like that - they have filed already, and we recognize that anything of real value is already “not theirs” and disposal would be handled by the trustee. Those items that are of both monetary and sentimental value (and there are very few), I am just hoping the trustee would be willing to let a family member have first crack at purchasing them at something like market value.
Generally, they will, if your bid is comparable to market value. If in fact they are looking to sell a bunch of stuff, you can make an offer for all of it at a lower price, since the time saved in having one sale makes up for a lot. The Trustee’s attorney’s fees are paid by the Estate, so they will often cut deals if it saves them time.