Give Away Assets before going Bankrupt
- 03 Feb 2022
You cannot give away assets before going bankrupt in order to protect them. The transaction will be overturned.
Included in this article:
- What is a transaction at undervalue
- Can you give away your house before going bankrupt?
- What about giving away your car?
- Do you need to worry about your household belongings?
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What is a Transaction at Undervalue?
A transaction at undervalue is where you give away one of your valuable assets (such as a car or property) or sell it for less than it is worth. If you do this within 5 years of going bankrupt the transaction can be overturned by the Official Receiver (OR).
In other words the OR is within their rights to demand that the asset is handed back to them. If the person you gave it to refuses they could themselves face legal action.
The only time this rule can be avoided is if the transaction happened more than 5 years before the date you go bankrupt. In those circumstances the transaction stands and the goods cannot be recalled by the OR.
If you have carried out a transaction at undervalue whether wittingly or unwittingly you are at risk of getting a BRU.
Can you give away your House before going Bankrupt?
If you are a home owner you will probably be aware that going bankrupt could put your property at risk. In order to get around this you may consider transferring your share of the property to someone else.
However unless you carried out the transaction more than 5 years ago it is a transaction at undervalue. The OR is legally allowed to ignor it and proceed to realise your share of any equity.
You can sell your share of a property before you go bankrupt if you wish. However you need to receive fair market value. You will have to hand over the cash to the OR and give a detailed account how any of it has been spent.
Keeping quiet about a property transfer is not an option. The OR will do a Land Registry search and discover you have been a home owner in the last 5 years.
Can you give away your Car before Bankruptcy?
If you own a car that is worth more than £1000 the Official Receiver will normally ask you to sell it and buy a cheeper one.
To avoid this you might think that you could simply give away the car to your partner or another third party. You could then claim that you do not own a vehicle but still continue to use it on a day to day basis.
Unfortunately this is also a transaction at undervalue. If the OR discovers the transaction they can force the return of the vehicle from whomever is the new owner and sell it.
The OR will normally investigate any vehicles you may have owned in the last 5 years by reviewing your DVLA record.
Should I give away any of my household belongings before going Bankrupt?
In general the OR has no interest in your household possessions. You do not need to declare any of your belongings to them unless individually they are worth more than £500 second hand.
Given this there is no need to even consider giving these type of items away before going bankrupt. However if you own anything worth more than £500 these must be disclosed.
You may think about trying to protect these belongings by giving them away. After all how would the OR ever find out? In reality they may not. However if they do they will act to recover the items.
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Hello, my mother is expecting insolvency and defaulting on a 100k mortgage which she rents out. Can she sell her residential property to me for a lump sum at market value, then spend all the money on herself for luxury holidays etc?
Hi Mr Plant
If your Mother is likely to go bankrupt, I would not recommend selling her property beforehand and then spending the proceeds.
if i suspect i may be made bankrupt by one of my creditors can i choose to pay other creditors first now or will the receiver be able to reverse those payments to pay a “higher priority” creditor?
Hi Kate
If you are likely to be made bankrupt, it is not a good idea to pay off other creditors beforehand.
If you do, the official receiver may consider these payments as preferential. They can then demand that the monies are returned by each creditor.
You could also get a BRU which will extend some of the bankruptcy restrictions you are under past the standard 12 months.
You can read more about preferential payments and possible ways to overcome the problem here: Paying a friend before going bankrupt