Do not Keep a Home Purchase a Secret During Bankruptcy

For the ordinary person who sees a home he/she likes, s/he may let a real estate agent know to begin the purchase process, and conclude by signing their name in closing documents, making where s/he lives public in home sales reports. However, according to Zillow.com, celebrities often keep where they live a secret with non-disclosure agreements, Limited Liability Companies (LLCs), or living trusts. This is a technique that is useful for real estate investors or any person who simply wants to maintain their privacy, but not for a person thinking about filing bankruptcy or has a pending bankruptcy case.

A LLC is type of business entity that requires few formalities, and provides limited liability protection to members. An LLC is formed in some jurisdictions by filing articles of organization with the Secretary of State.

A person creates a trust with (1) present intent, (2) trust property, (3) beneficiary to enforce the trust, (4) trust purpose not contrary to public policy, (5) appointed trustee.

A non-disclosure agreement is a contract, in which the parties agree not to publicly disclose information that a party wants to stay confidential.

To maintain privacy, a home buyer can set up a trust or LLC, and place the ownership of the home in the name of the trustee or LLC member. The LLC member and the trustee would be someone not easily connected with the home buyer. For example, it was reported that when Jennifer Aniston purchased a New York penthouse, she created “Norman’s Nest Trust.” Norman was Aniston’s dog. However, when someone is in the midst of a bankruptcy case, or is contemplating bankruptcy, the person needs to disclose all his/her assets, and be truthful of the property he/she owns to the bankruptcy trustee and the court. Not disclosing all assets or attempting to hide assets by putting it under someone else’s name or creating entities to hide assets may be considered a crime when someone is involved in a bankruptcy case.

For the person not in bankruptcy, to ensure privacy in the real estate transaction, a home buyer can have everyone involved in the sale, including the real estate agents, sign a non-disclosure agreement. Agents may sign away to earn trust, and to protect a buyer’s privacy when it means repeat business. After signing a non-disclosure, the party receiving confidential information has to be careful not to let anyone know the name of the buyer, not even property inspectors. The name of the buyer becomes legally protected confidential information and may be classified as a trade secret.

A person who has filed bankruptcy may think a non-disclosure can keep some of his/her assets away from creditors, but in a bankruptcy petition, the debtor is asked to disclose all assets so the debtor has a legal obligation to volunteer property transactions even when another party may be forbidden to do so by non-disclosure.

Contact an experienced New York bankruptcy attorney to learn more about bankruptcy asset disclosure requirements.