Transfer of property

[Alluem]

In 2007, my grandfather gave me a house for $1. This house was old and falling apart and I didn't have the money to upkeep the property properly. The furnace died, we installed a pellet stove (not to code), the plumbing had leaks, the electrical was outdated (cloth wrapped). In 2021, I moved in with my children's father. The house sat vacant, raccoons tore through the roof and occupied the attic space. Mold grew through the holes. It was essentially condemnable. When I couldn't afford the taxes in 2023, my sister took over the payments and asked if I would sell her the house so she could demolish it to build a new home on. She paid for the demolition, I have receipts in her name, and I signed the property over to her for the same $1 it was given to me in January 2024. The vacant lot next door, of similar size, has been for sale for over a year, nobody has interest in it. The tax appraisal on the vacant lot is around $5000. My sister paid $12000 to demo the house. Even though I was in debt, the transfer was not made to avoid paying creditors, nor was it made to keep in my name. It literally was just another burden I was carrying and wanted to be rid of.

Fast forward to now. I'm deeper in debt, in the process of leaving my significant other and unentangling our finances and need to file bankruptcy to have a clean slate and afford to move forward. Will it be difficult to establish that the property I transferred had no value? I intend to consult a lawyer, but this property is causing my anxiety to spike.

[justbroke]

This is a serious legal question and it is best answered by a Michigan license attorney. Try to arrange 3-5 free consultations and pose this question during the consult.

My thought is that this is going to be problematic. A family member is an insider for purposes of the bankruptcy code. The key legal question is whether this would be a fraudulent transfer to an insider. That word "fraudulent" transfer doesn't necessarily mean actual fraud. It could be as simple as transferring the property for less than fair market value (FMV). You also transferred it to an insider which just extends the lookback period (how far the Trustee can look back at transactions). If there was no actual fraud then the worse case would likely be that the Trustee claws it back from the relative by voiding the transfer outright. The Trustee could possibly offer the relative to buy the value. Determining the value is going to be problematic too and I'm sure there will be a fight over the value of the property.

TL/DR: yes, it will be difficult to establish the value. The Trustee is likely to use their strong-arm powers to void the transfer. They may offer your relative a chance to buy it back. If it's worthless, and you can prove it is worthless at the time of transfer, then there could be hope but that's a high hurdle.

Please let us know how it goes. Maybe the Trustee will say that it was worth the appraised value at the time it was transferred. If that's $5K, then maybe an offer to the Trustee for some percentage of that would satisfy the Trustee's needs.

[Alluem]

This is my worry. As I really don't share my finances with my sister and would rather not listen to her lecture and belittle me on finances.

[despritfreya]

A Chapter 7 Trustee can attempt to undo the transfer. See 11 USC 548. If you file a Chapter 7, the Trustee will most likely approach you to settle the issue before he/she goes after the family member. You could "protect" your sister by taking him/her up on the offer to settle. If you do not, your sister will be dragged into the case. Your sister could defend her ownership of the property by showing what she put into the property v. what it was worth but that probably requires expensive litigation. In all likelihood you or your sister will settle the controversy (a "9019 compromise settlement") by making an offer to pay $x to the bankruptcy estate. If the property is worth $5,000 the offer could be, say $3000.

You can try to avoid any issue by filing a Chapter 13, disclosing the transfer, valuing the transfer and paying that amount to your unsecured creditors - but you would be in bankruptcy for at least 3 years. The value of the property simply may not justify the Chapter 13.

Regardless, you need to discuss this with an attorney in your area.

Des.