What You Need to Know
Long before you speak with a bankruptcy attorney, you need to think about asset protection. Why? Once you discuss the possibility of filing for bankruptcy, it may be too late to try and protect your assets.
What you can keep depends on the type of bankruptcy you file. A Chapter 7 bankruptcy often leads to asset liquidation.
If you file for Chapter 13, you will most likely be allowed to keep your property. That is one of the primary differences between Chapter 13 vs. Chapter 7.
The most important thing to know here is that you must plan in advance how you are going to go about protecting your assets.
Assets Exempted from Bankruptcy in Florida
Certain assets are typically exempted from bankruptcy. Asset protection in Florida extends to the following items in most instances:
- Motor vehicles used for transportation – collector vehicles may be subject to sale to pay off debts
- Social Security payments
- Retirement accounts
- Profit-sharing plans
- Personal property up to $1,000 – furniture, household goods, electronics, art, clothing, jewelry, bank and investment accounts, cash
- Education savings
- Healthy savings
- Prepaid medical and health savings accounts
- Preneed funeral arrangements
- Tax refunds and credits
Of course, every case is unique. A bankruptcy attorney is the best person to advise you on what is subject to forfeiture. If you do not own real estate, you can get an extra $4,000 in personal property.
Remember, it is only in Chapter 7 that you need to worry about forfeiture of your assets.
Advanced Protection of Assets
Advanced protection of your assets requires diligent planning. Like many people, you may wonder how to hide money from creditors. Under no circumstances should you consider engaging in any illegal activity to do so. That could lead to serious consequences. There are, however, some steps you can take to protect some of your assets:
- Asset protection trust – this type of trust must be irrevocable, contain spendthrift clauses, and have an independent trustee to control all actions and distributions.
- Accounts-receivable financing – one way that a business owner can protect from the liquidation of one’s business is by borrowing against the accounts’ receivables. This action can encumber the future value of the business. Speak with a certified public accountant or financial planner about this option.
- Equity reduction – by reducing the equity in an asset, such as a home, you are financially encumbering the asset. However, you must have a legitimate reason for the encumbrance. Also, it must be taken out more than one year before filing bankruptcy.
- Use monetary funds to pay off nondischargeable debts that you will still be responsible for paying after filing bankruptcy, such as:
- Student loans
- Delinquent child support
- Purchase a life insurance policy
- Make contributions to health savings and exempt retirement accounts
- Pay down as much of your mortgage as you can
By doing these actions, you put your money to good use rather than have it taken to satisfy your debts.
Beware of Fraudulent Asset Transfers
Asset protection must be done with great care. Once you file bankruptcy, and even prior to filing bankruptcy, you can no longer transfer any of your assets. A Chapter 7 trustee can also look to block or void any transfers of assets made within a proscribed period prior to filing. That is why you need to consider your options well in advance.
For people who find themselves in this grey area, a Chapter 13 bankruptcy may be the better option.
In all circumstances, you want to get the counsel of an experienced bankruptcy attorney. Please contact Coral Springs attorneys Brodzki Jacobs & Brook to discuss your options. We are here to provide answers to your questions. Contact us at (954) 344-7737.