The safest strategy to protect non-exempt assets is to convert unprotected
assets into exempt assets. But you must then wait forty months before
you file bankruptcy.
A well-drafted limited partnership or limited liability company should
provide reasonable protection against a trustee’s claim if you titled
your assets to these entities at least two years prior to the bankruptcy.
Similarly, a transfer to an
irrevocable trust well prior to bankruptcy may succeed in sheltering your assets. Debtors
also equity-strip exposed assets and use the mortgage proceeds to buy
exempt assets, pay non-dischargeable debts, or pay preferred creditors.
Many protective strategies that can effectively shield assets from a judgment
creditor will equally protect against a bankruptcy trustee. But it is
dangerous to simply gift your property before bankruptcy. Gifts are easily
fraudulent transfers. Transfers to family members or friends, even for a fair price, will be
Make certain any transfer is an honest, fair value transaction. Even an
innocent transaction can be wrongly interpreted in bankruptcy and prevent
your bankruptcy discharge. Review every major transaction within the preceding
five years carefully with your attorney before you file.
Finally, be scrupulously honest when you file bankruptcy. Don’t attempt
to conceal your ownership to assets. Bankruptcy fraud is a serious offense.