How asset protection plays into your pre-bankruptcy planning.
your asset protection strategies have gone awry and bankruptcy looms,
you need to consider you options. Regardless of the path you take when
filing for bankruptcy, you need to strategically prepare for the
There are basically two kinds of debt, secured and unsecured.
Secured debt has been advanced to you, secured by the collateral that
you have pledged. A creditor holding a security interest in your
collateral has the right to take the property in the event that you
default on your scheduled payments. If the collateral is now worth less
that the outstanding debt, you may be personally liable for the
Unsecured debt has been advanced to you without any collateral, only
your personal promise to repay the loan. Most often unsecured debt is
credit card debt although there are other forms such as student loans
and installment loans. A creditor with unsecured debt has no recourse
other than to sue you when you default and obtain a judgment against
If you decide to file for a liquidation bankruptcy, you will very likely
have to sell many of your valuables. Careful preparation is the best way
Preparation for filing
When you do sign the papers that will be used to support your bankruptcy
filing, you will be making an oath that everything that you have listed
is a truthful listing of your property. While you could lie about your
assets, having given all of you personal property to your brother for
safekeeping, courts have this thing about people lying to them. The word
In all bankruptcy filings, you will have certain exemptions for property
that cannot be taken to satisfy your creditors. The types and amounts of
exemptions will vary from state to state, but you can expect to be left
with enough assets to be able to have a fresh start. You should also
avoid a rapid usage of credit cards immediately leading up to you
filing; the court will frown upon this activity, considering it akin to
The exemptions discussed above play into your pre-bankruptcy planning.
While you are not allowed to hide and transfer assets, you may be able
to sell certain items and use those funds to pay down some of the debt
on your exempt property. For example you may decide to use liquid assets
to pay toward the equity of a home. This will also play into the
individual homestead exemption of the state in which you reside.
You will need to remember that everything you do for the previous year
leading up to your filing is going to be scrutinized. If you
mysteriously start to do things that are completely out of character, it
will raise red flags. If you do anything that can be found to be a
purposeful effort on your part to perpetuate fraud against any of your
creditors, you can get into big trouble. Your possessions, while
important to you, are not worth the repercussions of fraud.
Here are some commonly utilized transaction that many use prior to
filing. You should of course seek legal counsel on all of you decisions
to see if they comply with current bankruptcy law.
You can make your annual contribution to your IRA or to any other
exempt pension plans. They are generally exempt from a filing.
Utilize your liquid assets to pay off debts that will not be
dischargeable, such as taxes.
Pay down your mortgage on you personal residence, especially if you are
in a state with an unlimited or significantly large homestead exemption.
You can take out a life insurance policy, which will be exempt.
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