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 recovered as fraudulent transfers. Transfers to family members or friends, even for a fair price, will be examined closely.
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.