Transfer of Assets Prior to Filing is Generally a "No-No"
People will sometimes transfer assets prior to filing bankruptcy, because they think that this is how to protect it from being taken away. This is a good example of a costly legal mistake that people often make, which an expert would easily have avoided. Do not attempt to omit such assets from the bankruptcy schedules. Do not hide, conceal, transfer, or falsely encumber non exempt assets. Doing so carries the risk of being prosecuted for committing bankruptcy crimes, it is likely to result in the denial of a bankruptcy discharge, and the trustee can still recover such property, or its value, from whoever it was given to. If such property is recovered by a trustee, the debtor can not then claim it as exempt, even if it could have been properly exempted before such transfer. Surrendering non exempt assets is a price the debtor pays for the privilege of seeking relief under Chapter 7. CAVEAT: Consult with a bankruptcy specialist before you file to determine what is exempt in your case.
Bankruptcy Exemptions Are Established under State Law
The Federal bankruptcy laws allow each state to determine which assets a person is allowed to keep when a bankruptcy case is filed. Exemptions vary, from one state to another. Some states have generous exemptions, some don't. Proper exemption planning is essential to successfully accomplishing the Debtor's goal of protecting assets. However, great care must be taken. Non-attorneys, such as the so-called legal document preparers, paralegals, or other non-attorneys, cannot be relied upon to properly guide a person through the legal maze of bankruptcy laws.
If the property has more equity in it than can be covered by every applicable exemption, (sometimes an asset may be cross-covered covered by more than one exemption) the bankruptcy trustee may sell the property. When the trustee sells the asset, the trustee will pay the amount of the exemption to the debtor, and retain the non exempt amount of equity for the bankruptcy estate.
The Exemption Laws Can Be Complicated.
CAVEAT: Always check with an expert before taking any action, as the laws sometimes change, and court rulings will occasionally affect the manner in which these laws are applied and interpreted. For example, the bankruptcy law also places certain exclusions on property that can be claimed as exempt in situations where the debtor has not been domiciled in the same state for at least 730 days before the filing of the bankruptcy case, and if not, then the debtor may be required to use the exemptions of the state where the debtor used to live, instead of the state where the debtor now lives. These exception requirements are extremely complex and require careful analysis by an expert.
Special Rules May Apply to Homesteads
The law imposes certain other limits. In addition to requirements regarding length of the domicile to determine which state exemption law to apply, the new bankruptcy law enacted October 17, 2005 puts a further limitation on the amount of the allowable homestead exemption. Bankruptcy Code ?522(p)(1)further provides that a homestead exemption may not exceed $125,000 if the property was acquired within 1215 days preceding the bankruptcy, unless the debtors interest in the property was transferred from the debtor's previous principal residence into the debtors current principal residence and provided that both residences are located in the same state. To take advantage of the homestead exemption, the property must be used by the Debtor as a principal place of residence, and may be a mobile home or a boat used as a principal residence. (Note: The 1215 day rule is one of the few provisions of the 2005 Amendments that actually took effect in April 2005 when the law was passed, while almost a
Possible Denial of Exemptions
The exemptions claimed by the debtor are subject to being disapproved if the debtor has claimed the wrong or inapplicable exemptions, or if the debtor has engaged in inequitable conduct, such as a fraudulent transfer of the exempt property, hiding the asset, or misrepresentating the value of the asset.
Additional resources provided by the author
You should be able to find out the assets that are allowed as exempt in your state with a simple internet search. However, don't rely on what you read. It might not be up to date, as the exemption laws change frequently, and new court rulings often change the way the rules and statutes are applied and interpreted.
CAVEAT: Consult with a bankruptcy specialist before you file to determine if you have any assets that are not exempt. Do not engage in schemes to hide, transfer or conceal assets. Inexperienced people can't help but trip over the maze of new rules and regulations.