I will be discussing some things to do and not to do before filing bankruptcy. Or, it can be considered exemption planning.
First thing not to do before filing bankruptcy – pay friends or relatives money that you owe them.
This is called a preference.
You cannot choose to pay your friends or relatives back money that is owed to them in preference to all of your other creditors. In the eyes of the bankruptcy trustee, owing your brother $2,000 is no different than owing Visa $2,000.
That is the reason you can’t give your brother your $2,000 tax refund and give Visa $0, then file bankruptcy. The bankruptcy trustee would force your brother to give the $2,000 back for proper distribution to all of your creditors.
Sometimes it is easier for me to exempt the $2,000 as your asset, then you can pay back your brother after the bankruptcy is finished. If you no longer have the $2,000, then I cannot exempt something that you no longer own.
Second thing not do before filing bankruptcy – allow a friend or relative purchase a car in your name.
Some people get assistance to get reliable transportation before filing bankruptcy. They assume that once the bankruptcy is filed, they won’t be able to get a car loan in the future. But the problem is that many people either forget to put a lien against the car, or the person that is giving the assistance doesn’t feel it is necessary.
It is generally not sufficient for the person who lent the money to only keep the title or to put the lien on title long after the vehicle was purchased.
Here’s why: if you own a car free and clear of all liens, it may be an asset that cannot be fully protected in bankruptcy.
Florida has a very small exemption for vehicles. There is a $1,000 exemption included in Florida Statute 222.25(1). If you do not own a home, or are not using a homestead exemption, you may qualify for $4,000 more in exemptions.
So if Uncle Jim purchases a car for you that cost $6,000, you may only be able to exempt up to $5,000. The trustee would require a payment of the unexempt portion or take the car. But if Uncle Jim placed a valid lien on the car, then there is nothing for the trustee to take. Please note the importance of “valid lien” in the previous sentence. You need to speak with me regarding proper exemption planning.
The best way to handle the purchase of the car is for Uncle Jim to buy the car and keep it in his name until after the bankruptcy. Then it would be his car and not an asset that you would need to list on your bankruptcy petition.
Call 407-749-0080 now for a free consultation to see how I may be able to help you with proper exemption planning.