Bankruptcy cases are extremely complicated. In many cases it is not enough to have a firm understanding of the Bankruptcy Code, the many federal court rules on bankruptcy procedure, local court rules, state and federal exemption laws, bankruptcy case law, and the customs of the local court. Sometimes you have to be creative for your client.
There is no “one-size-fits-all” short cut in bankruptcy. There is no silver bullet that works every time for every client. However, there are some usually strategies that are used to help some clients. Below are five of the most common:
Jointly Owned Assets
A jointly owned asset can raise issues during a bankruptcy case. When the asset is jointly owned with a person that is not also in bankruptcy, the situation can become very complex. First, in order to liquidate the asset, the trustee must correctly identify the ownership percentage that belongs to the debtor. This can mean quite a bit of work for the trustee. In some cases it can lead to a separate legal action and additional costs. Finally, in states that recognize ownership by tenants by the entireties, an asset that is jointly owned between a debtor and a non-filing spouse may be entirely protected during bankruptcy. Protecting jointly held assets is very case-specific, and is often very effective in shielding property during bankruptcy.
Singly Owned Debts
Like Jointly Owned Assets, when a debtor has kept income, expenses, and debts separate from a non-filing spouse, the spouse’s income and assets can be shielded from the debtor’s bankruptcy case. When a debtor has a debt that is just in his name, the creditor generally cannot attack the assets or income of his spouse without showing personal liability for the debt or commingling of finances. Keeping debts, assets, income, and expenses separate makes a creditor’s case to attack spousal assets very problematic.
Spend Your Cash
Spent cash is extremely difficult to seize. Across the country bankruptcy attorneys advise clients to receive and spend their income tax refunds before filing bankruptcy. The same is true for money in the bank, in a cookie jar, or under the mattress. You must account for all cash at the time of the bankruptcy filing, and in some cases the debtor does not have sufficient legal exemptions to protect the entire cash balance. Cash is a red flag for the trustee and the easiest way to attract attention. Be advised that before spending your cash money be sure that you have consulted with your attorney and received legal advice to prevent any legal pitfalls. For instance, using your cash to pay back a personal loan to your mother or pay off your car note could cause additional headaches in your bankruptcy case.
Secure Your Property
The Chapter 7 trustee can only liquidate property that has remaining equity after deducting any liens and legal exemptions. Property that has little or no equity is “safe.” For instance, a car that has excessive equity is at risk during a Chapter 7 bankruptcy. The trustee can take the car, sell it, and pay creditors. However, if the car is secured by a loan prior to bankruptcy, the trustee cannot take the car. This is a common tactic used by debtors, but must be performed under the supervision of an experienced bankruptcy attorney. The cash received from the loan must be accounted for and spent wisely.
Increase Your Expenses
Early bankruptcy consultation can be very beneficial. For instance, purchasing a car prior to bankruptcy could mean the difference in passing and failing the bankruptcy means test. Increasing your retirement contributions, donations, and insurance are common strategies that can help keep you from paying more than you should (or any!) to creditors during bankruptcy. Again, speak with your attorney to learn if adjustments to your expenses can help you.