This strategy calls for you to borrow against or otherwise pledge your assets as collateral security for some obligation. The secured creditor then has first claim against the asset to the extent of the loan. If the loan approximates the value of the asset, there is little or no equity exposed to a litigant. These loans can be structured in a number of ways. It's possible to fully encumber everything you own through one or more loans, and this is a common defensive technique.
Too many attorneys overlook the equity stripping strategy when they attempt to shelter their clients' assets. But equity stripping combined with titling assets to protective entities can be just the combination needed to stop even the most determined creditor. Part of the problem is that lawyers may see equity stripping as a financial – not legal – solution. A more common problem is that few attorneys – or clients – know how to structure liens that are both defensible and workable from the client's perspective.
Encumbering your assets reduces the equity your creditor can seize. You may have multiple investments but your equity in those investments is minimal due to liens, or mortgages. You can do this with all assets which are not protected, such as second homes, collectibles, vehicles, etc. You can lien your assets separately or give a blanket lien to one creditor. Similarly, you can equity strip the assets in your business or professional practice. The goal is to leave no asset unencumbered and exposed.
Equity stripping can be a great additional firewall above and beyond titling your assets to protective entities or converting them into exempt assts. Again, the goal is to strip the equity from everything you own so that your assets are valueless to a plaintiff. You can accomplish this with many different types of liens. A lien is a mortgage or security interest filed against a debtor's real estate or personal property. For real estate, as the owner of a piece of property, you own the property, but you transfer the economic value of your property to the mortgage holder. This reduces your equity in the property and the equity your creditor or litigant can seize. You may place multiple liens against one property. The priority of each lien is then determined by their priority of filing in the public records.
When you have valid liens, a claimant can only seize the equity you have in the property. For protection, you want little or no equity exposed. Your $300,000 home with a $300,000 mortgage is worth nothing to a litigant. Different terminology applies to personal property. A lien on personal property is a security agreement. You may also pledge personal property to secure your debt. The personal property may then remain in the possession of the secured party (i.e. pledged jewelry to a pawn shop). More typically, the debtor continues to possess the collateral. The secured party only files a notice of lien (a financing statement) in a public recording office to give third parties notice that the property is encumbered.
Debt-shielding your business is just as important as protecting your personal assets. Encumber your business assets with a friendly lender. Should an unsecured creditor try to collect against your business, the friendly creditor can foreclose and re-sell you your own business assets. You can even act as your own lender, and supply capital to your business. It's important to note that any lien must be valid, and you must be able to prove that you actually owe the money. Don’t invest or lend money to your business without first consulting with an Attorney.
For additional information about equity stripping your assets, contact The Presser Law Firm, P.A. for a complimentary preliminary consultation.
The Presser Law Firm P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(800) 999-9992 or e-mail firstname.lastname@example.org