WHAT are the things that you should not do before you file for bankruptcy? First on the list of things not to do is do not hide assets.
Concealing assets
What does not hiding assets mean? Let’s give an example. You own a house with a fair market value of $1.0M in Los Angeles. You owe a first trust deed of $450,000. You also owe a second trust deed of $100,000.
Hence, you owe a total secured debt on your house of $550,000. So your equity in the house if $450,000. You are afraid that if you file for bankruptcy, you will lose the house. Thinking that you know bankruptcy law, which of course, you don’t, you quitclaim your house to your girlfriend as a gift for all the love and affection she has given to you six months before you file for bankruptcy relief to wipe out $100,000 of credit card debt. You think that you’re really smart making this transfer to your girlfriend because you don’t own the house anymore and have thereby eliminated the risk of losing your house when you file bankruptcy.
Another method you might have heard of is to “protect the house” by forming an LLC then transferring ownership of the house to the LLC.
Or, you might have thought of creating a fake trust deed of $450,000 in favor of your grandmother who lives abroad to wipe out the entire equity in your house.
At the bankruptcy hearing, the trustee asks why you transferred your house to your girlfriend as a gift. “Sir, because I really love her so much. I would die for her in the blink of an eye. So gifting her my house six months before bankruptcy was simply my expression of my love for her.”
After the hearing, the trustee files an adversary case to get the house back from your girlfriend with the intent of selling the house and using the net proceeds from the sale of the house to pay off your creditors, himself as trustee fees to administer your case, and his lawyer for all legal work to get your house back. Pretty much that will use up all of the $450,000 equity in your house that you thought you had hidden by transferring your house to your girlfriend.
Hiding assets in bankruptcy is a crime
By hiding your house from the bankruptcy court, you lost the $450,000 of equity when you could have kept your house even if you filed for Chapter 7 by claiming the entire $450,000 as exempt homestead equity, and you might have committed a bankruptcy crime, a felony punishable by a fine of $250,000 and three years incarceration.
Therefore, do not even think of concealing assets before you file for bankruptcy. You might end up in jail.
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Disclaimer: None of the foregoing is considered legal advise for anyone. There is absolutely no attorney client relationship established by reading this article.
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Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.
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