Please help... Is this kosher>>>

[trader19]

I have a timeshare that has been on the market for 18 months. While I am going to file BK in about a month, the timeshare is finally under contract. I should have the deal closed and walk away cash in hand of about $6,000 prior to filing.

I am selling the timeshare at a loss from what I bought it for, but will have that bit of equity which I am going to use to pay my delinquent IRS taxes.

1. Is selling this asset (at fair market price to an unknown buyer) just prior to filing going to be frowned upon? I have had it on the market for 18 months.

2. Will this be considered income? I am selling it at a net loss but did have some equity in it.

3. Is it okay that I flip that money to the IRS?

Thanks for your help and happy Easter!

[justbroke]

1. Is selling this asset (at fair market price to an unknown buyer) just prior to filing going to be frowned upon? I have had it on the market for 18 months.

I don't think it would be frowned upon, but the transaction will be examined more closely. In fact, most Trustee absolutely HATE timeshares and would usually abandon them from the Estate anyhow, unless they can manage to, and I hate using the word, coerce the debtor into buying it back from the Trustee.

2. Will this be considered income? I am selling it at a net loss but did have some equity in it.

The Bankruptcy Code does not define "income" but does define "current monthly income". It is generally "regular" income received by the debtor. So the sale of property is not "current monthly income" for purposes of the bankruptcy. However, the proceeds are an ASSET and you will need to deal with this asset appropriately by either exempting it or spending it. The latter may cause you grief it the spend-down was not on necessary items.

3. Is it okay that I flip that money to the IRS?

The IRS is a priority unsecured creditor and would have been paid first (after the Trustee) in your bankruptcy anyhow. I don't think anyone would frown, but there may be questions. I would attempt to distance the sale from filing by at least 90 days if you can. You may still get questions anyhow, regarding the transfer of the property.

[despritfreya]

I agree with JB but for waiting 90 days if money used to pay priority (less than 3 years old) taxes. I see no reason to wait. The Trustee is not likely to seek recovery from the IRS of such a payment just to line his own pocket and pay the rest back to the taxing agency. Trustees, in the past, have gotten their hands slapped for such self dealing (surprising but true).

Make sure the sale of the timeshare is disclosed on question 10 of the Statement of Financial Affairs and the payment to the IRS is disclosed on question 3 of SOFA.

Des.

[justbroke]

Lately, I have seen nothing, however anecdotal, of Trustees attempting to or actually lining their pockets. I agree certainly that most would not get involved with recovery or a preference, just to send it back to the same creditor (IRS).

(Remember the "carve out" short-sale of an underwater surrendered property?)