Q My elder sister sold a condominium unit she co-owned with my younger sister. They earned $80,000 from the sale, and the money was used to repay my younger sister for previous loans she extended to my elder sister. Now, eight months later, my elder sister is planning to file for bankruptcy because of $100,000 in credit card debts.

Will the official assignee have a claim over my younger sister's $80,000?

A You did not state the manner in which the condominium was co-owned. However, on the assumption that the condominium was owned in equal shares, then each person's share of the profit was $40,000.

A bankrupt cannot, in anticipation of bankruptcy, prefer some creditors over others. This means your elder sister cannot choose to repay some creditors and not others.

In the case of a related party - that is, your younger sister - it is presumed, unless otherwise proven, that any repayment of a debt to that related party within two years up to the date of the bankruptcy application is influenced by a desire to unfairly prefer that related party over others.

If the credit card debts were incurred prior to your older sister repaying the debt to your younger sister, the official assignee can initiate legal action to recover the amount that was repaid.

Advice provided in this column is not meant as a substitute for comprehensive professional advice.

Mr Adrian Wee
Director
Characterist LLC

This article was first published in The Straits Times on December 28, 2008.