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Legal Strategies Bankruptcy Attorneys Use to Keep Assets from Creditors

Legal Strategies Bankruptcy Attorneys Use to Keep Assets from Creditors

Contrary to popular belief, when you file for personal bankruptcy, you don't lose everything you own to your creditors.

Chapter 7 bankruptcy allows you to keep certain exempt property, such as clothing, retirement accounts, household items and an automobile. Non-exempt property is sold to repay your creditors and most debt that remains is discharged, or forgiven.

Chapter 13 bankruptcy potentially allows you keep all of your property in exchange for repaying most or all of your debts in a three to five year period. The trustee overseeing your case will determine how much your creditors would have received if you'd filed for Chapter 7 bankruptcy, and you usually must pay your creditors that amount, at minimum. (If you wish, you can still surrender property, which will then be sold to repay your creditors.)

Shielding Assets from Creditors

When you hire a personal bankruptcy lawyer, your attorney will look at your assets and financial situation to determine whether Chapter 7 or Chapter 13 bankruptcy is right for you.

If you opt for Chapter 7 bankruptcy, you must then consider exempt property. The list of exempt property is set by federal law. Some states, however, have their own lists of what constitutes exempt property. And depending on your state, you may be able to choose between the federal list and the state list.

If you live in a state that allows you to choose between the federal exempt property list and the state exempt property list, then your attorney will help choose the option that maximizes your exemptions and shields the most assets from creditors.

But what other steps can you take to retain ownership of as many assets as possible? That's a good question. And there's a fine line between legally shielding assets and hiding or transferring assets in an effort to defraud your creditors. At worst, you could face criminal charges.

For example, you can't transfer the ownership of an asset, such as your home or a car, to a friend or family member shortly before filing for bankruptcy in an effort to save it from your creditors. And big cash withdrawals in the days leading up to your bankruptcy filing will also raise red flags.

On the other hand, money in retirement accounts is, subject to certain limits, protected from creditors. And if you live in the right state, such as Florida or Texas, your entire homestead, or primary residence, is considered exempt property, regardless of its value.

It's important to understand that there are many strategies to help protect assets from creditors when you file for bankruptcy, but every situation is unique. Talk to a consumer bankruptcy attorney to ensure that you're maximizing your exempt property without running afoul of the law.

Visit LawyerLocator for more information about bankruptcy or to hire a consumer bankruptcy lawyer.