New York Bankruptcy Exemptions – Part Five – Pre-Bankruptcy Planning

13 Aug New York Bankruptcy Exemptions – Part Five – Pre-Bankruptcy Planning

It is perfectly proper to engage in pre-bankruptcy planning to maximize your allowable exemptions. Your planning, however, should be done with the guidance of a knowledgeable bankruptcy attorney.

Far too often I have had new clients tell me that they sold their car for $1 to their girlfriend, or they signed a quit claim deed to their property to their spouse shortly before coming to see me. These types of attempts at protecting assets often result in the needless loss of the very property they were trying to save.

Other times people borrow from their family in a futile attempt to pay down their credit card debt, and then pay their family back with their tax refund shortly before filing for bankruptcy. This type of pre-bankruptcy activity often results in a Chapter 7 trustee recovering the money paid on the credit cards AND recovering the tax refund money paid to the family.

An example of proper pre-bankruptcy exemption planning is as follows: Say you have $6,000 in cash in the bank, a car on which you owe more than its value, and furniture worth $1,000. A Chapter 7 trustee could take $3,500 of your cash and use it to pay creditors (because you can only exempt $2,500 of cash). If instead you purchased a used car for $2,500 from the cash you have in the bank, and purchased $1,000 of furniture you need for your house, you are left with an exempt car (with no car payments), exempt furniture, and $2,500 in exempt cash in the bank. The trustee now has nothing to take.

But remember, while it is perfectly acceptable to engage in pre-bankruptcy planning to maximize your assets, it is NOT acceptable to defraud your creditors, or engage in actions that could constitute bad faith. Do not try this alone at home, without the advice of an informed bankruptcy attorney.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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