The official rules of monopoly do not clearly state if one can do what PaSTE describes:
A player is bankrupt when he owes more than he can pay either to another player or to the Bank. If his debt is to another player, he must turn over to that player all that he has of value and retire from the game.
This would imply that unless you can come up with the money everything goes to the owed player as is. I take the phrase "than he can pay" to mean that the player can do whatever they want to do to come up with the money. This includes selling houses, making trades and mortgaging. BUT, if at the end of all this, you can't actually pay the person it is all cancelled. They get all your assets in their original form, minus the housing.

I think this reading of the rules is the most "fair", and is probably what is used in tournaments. This also avoids a player selling all his property to someone else for $1. It tends to be pretty easy to really screw over the person you owe by doing this because most likely you can complete a competitors monopoly for them.

The most important thing to do whenever playing Monopoly is to discuss how the rules will be interpreted, or more commonly, completely ignored. Otherwise, when PaSTE decides to try this out you'll simply get in a long argument over the ambiguous rules.