In part 1 we saw how certain assets are not protected when you file for bankruptcy. We discussed a couple of common strategies that people attempt when filing for bankruptcy. In part 2 we shall see how those ideas are just plain crazy, and we will learn the right way to deal with an unprotected asset.
It’s Highly Illegal!
You are not allowed to transfer an asset prior to filing for bankruptcy for the purposes of protecting the asset or gifting the asset – plain and simple.
So if you give your car to your son, you’ve broken the law.
If you give it to your friend so that it can be titled back into your name after filing, you’ve done something illegal.
Don’t even consider it. There’s fines. There’s jail time. There’s a world of hurt for you if you give away an asset.
So what am I to do?
There are options for you if you have an unprotected asset prior to filing for bankruptcy.
The main approach to solving this problem is to sell the asset. That doesn’t mean that you can sell your car to your son for a dollar, however. It’s got to be sold for fair market value.
So if your 1989 Chevy Sprint is worth $800, then you better sell it for $800 before your case is filed.
Any proceeds from the sale can be spent on your regular living expenses such as rent, food, clothing, etc.
And why not just put the $800 in your savings account, or better still, your mattress?
You must be cash poor when you file your case. In most states you are only allowed to have a few hundred dollars in cash when you file. If you sell an asset prior to filing, the bankruptcy trustee is either going to take the money that you haven’t spent, or is going to want to see where every penny of it went. And that means, save those receipts!
There are some other ways to protect assets prior to filing as well. They can be tricky and a bit complex, so it’s best to discuss your options with a veteran bankruptcy attorney before attempting any transfer of an asset.