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Asset Protection

Asset Protection Planning

Chances are you will be sued more than once in your lifetime. By taking some simple proactive steps toward asset protection planning, now you can help lessen the impact of a judgment in the future.

It is important to begin asset protection planning at least six months before you get sued in order to avoid most fraudulent conveyance laws. Since someone could slip and hurt themselves on your property tomorrow, the best time to begin asset protection planning is today.

Some asset protection planning strategies include:

  • Setting up out-of-state accounts or online banking accounts
  • Creating separate accounts for you and your spouse
  • Putting excluded funds like Social Security income or disability benefits in separate accounts
  • Protecting a certain dollar value of your home through a Homestead Declaration if your state allows it
  • Establishing an irrevocable trust

To learn more about protecting your assets from creditors visit the Asset Protection section of our website and see for yourself just how easy asset protection planning can be.

Asset Protection Planning for Bank Accounts

Without asset protection planning, one thing that creditors can do to enforce judgments is to take money from your bank account. A writ of execution from the courts is made and the judgment creditor then instructs the County Marshal to perform a bank levy at the bank where the judgment debtor has his/her money.

However, the judgment creditor doesn't necessarily know the location of the judgment debtor's account, so most try a shotgun approach and serve the levy on the most common banks in the area where the debtor lives.

Therefore, a sound asset protection planning strategy for cash accounts is to simply bank out of state. You can drive across your state line to set one up, or simply find a bank online without any local branches in your state.

A judgment against you in your home state isn't valid in any other. If you bank out of state a judgment creditor would have to first find the account and then have the judgment domesticated to that state. Practically speaking, this just doesn't happen.

You can still maintain your local accounts, but keep minimal cash in those and the majority in the out-of-state accounts. Think about opening an online savings account or online brokerage account.

Lastly, effective asset protection planning would be to make sure you and your spouse have separate accounts, so that a judgment doesn't end up clearing out an account where most of the money belonged to your spouse who had nothing to do with your debt. Note that if you live in a community property state you and your spouse are responsible for each other's debts.

Bankruptcy Asset Protection

While bankruptcy serves to protect some of your assets from creditors, like your home and basic necessities, it doesn't protect all your assets. In Chapter 7, some assets may be sold to at least partially satisfy creditors. Chapter 13 offers bankruptcy asset protection in the sense that you can keep your assets, but the trade-off is you have to pay some or all of what you owe to creditors over 3 to 5 years.

Under Federal bankruptcy laws, you can receive bankruptcy asset protection for a number of asset categories, including unmatured life insurance contracts, social security and unemployment benefits, veteran's benefits, disability benefits, alimony payments, most pension or profit sharing payments, and compensation for loss of future earnings. Further bankruptcy asset protection comes in the form of a certain level of exemption on homestead property, vehicle, household furnishings and tools of the trade. There may also be some state laws for bankruptcy protection or exemption amounts for certain asset categories.

However, bankruptcy asset protection does not include forgiveness for such debts as student loans, taxes, alimony, child support, and debts arising out of fraud or criminal activity. These debts must still be paid in full.

be paid in full.

To learn more, consult wit/debt-relief/traditional-debt-relief-strategies/bankruptcy/" class="interlink" title="Bankruptcy">Bankruptcy.

What Is Fraudulent Conveyance?

If you wait too long before doing asset protection planning, you may fall victim to the fraudulent conveyance laws (also known as fraudulent transfer laws). Fraudulent conveyance laws are intended to prevent you from deliberately moving assets out of a creditor's reach.

The important thing to realize about these laws is that they simply specify a timeframe in which the transfer of an asset is considered fraudulent. If I sold my car to my brother for $1 a year ago I would probably be fine. If I sold my car to my brother for a dollar a week ago—right after I found out that my car was about to be repossessed—I am probably guilty of fraudulent conveyance.

The statute of limitations for what's deemed fraudulent conveyance is determined by each state, so it is best to check with a bankruptcy attorney in your state or contact your State's Attorney General.

Fraudulent conveyance, or fraudulent transfer, is a civil cause of action. In other words, your creditors would have to prove a fraudulent conveyance or transfer occurred in a courtroom. However, unless a bankruptcy court is involved, or you are trying to hide significant assets, fraudulent conveyance suits are seldom pursued by creditors.

Creditor Wage Garnishment

If a creditor tries to threaten you that they will be garnishing wages, know that for this to happen they have to sue you and win and find out where you work in order to garnish your wages.

First, it may be a violation of the Fair Debt Collection Practices Act for a debt collector to threaten garnishing wages if they don't intend to sue you. Second, most debt collectors will threaten all kinds of things with no intention of following through.

Enforcing a wage garnishment requires that the creditor know where you work. Employers cannot refuse an order for garnishing wages. Otherwise, they, too, can face serious trouble and a visit to court. Therefore it doesn't pay to try and beg your employer to do otherwise. One defensive asset protection planning strategy to avoid garnishing wages is to change jobs or be self-employed. There is no law that says you should make wage garnishment easy for a creditor!

Garnishing wages does not apply to certain types of income, including social security, unemployment benefits, veterans, and disability benefits to name a few. There are also maximums for garnishing wages determined by state law and if your paycheck is already being garnished by one creditor, another creditor can't enforce a second garnishment. They would have to get in line.

Want to learn more about wage garnishment and steps you can take to protect yourself? Check out our tutorial on Asset Protection.

The Benefits of Homestead Exemption

If you're facing asset liquidity due to a judgment or bankruptcy, you should understand the benefits of homestead exemption (a.k.a. homestead declaration) as part of the asset protection planning process.

One way to protect your home from creditors is through a homestead declaration that allows a certain percentage of the value of your home to be exempt from collection. Your homestead is considered to be your primary residence as well as the land upon which it sits. For example, in Massachusetts, up to $500,000 of the value of the primary residence, per family, is protected.

Some states offer no homestead protection, some require you to file a homestead declaration, while others offer protection without filing. The owner of the house must file for this homestead exemption. However, if you're married and your spouse also owns the property, then both receive homestead protection even if just one owner files the homestead exemption form.

Though used interchangeably, homestead exemption and homestead declaration are two separate things. A homestead declaration can protect a certain value of your home from creditors while a homestead exemption can make a certain value of your home exempt from property taxes.

For example, if you live in Texas and your home is worth $180,000, you may qualify for a Homestead Exemption of $15,000, meaning property tax will only be assessed against $165,000 in value.