Believe it or not, if you are going to file for bankruptcy, you should plan on learning about this. The reason is simple. Bankruptcy is merely a current state of the financial affairs of the debtor. It is not the end of life nor is it going to be your lot in life forever. Some people have more personal possessions to protect then others, and it is with those people in mind that I am thinking about.
The law allows the debtor and his bankruptcy attorney to move assets around as necessary prior to filing bankruptcy. This is called pre-petition planning. It can be done as long as it is not done to defraud the court or a creditor.
For example, I heard about a bankruptcy attorney that had a client come into his office to begin the process of filing a Chapter 7 bankruptcy case. He told the attorney about some of the financial investments and bank accounts he had. But clear as day, he owned more and refused to tell the bankruptcy attorney about them. To prod him along, the attorney informed him that the $50,000 in stock he had would be taken by the court since it was not able to be protected by what we call exemption laws.
Yet, if he would simply work with a financial planner and move that $50,000 into any kind of retirement vehicle such as a 401k, IRA, etc, it would be fully protected. That is an example of allowable pre-petition planning.
Another bankruptcy musing concerning pre-petition planning is with a client who came into an attorney's office and said she had $200,000 of antique furniture in storage. She flatly refused to tell the bankruptcy attorney the kinds and amounts of the furniture that she had in her home. Her medical debts were about $200,000.
The law would not allow her to keep the antique furniture and discharge the medical debts since the antique furniture was not necessary to her financial reorganization and new life after filing bankruptcy. Plus, there were no applicable exemption laws that could protect that antique furniture.
Bankruptcy, as in pretty much every other area of law requires the debtor to be sane. It is the debtor himself who has to appear at the Meeting of Creditors, be sworn in, and then testify as to their personal and financial life. If the debtor is insane, this cannot be done.
There was a debtor who consulted a bankruptcy attorney about filing for bankruptcy. He would be lucid at one moment and quite out of it the other moment. There was no apparent drug or alcohol abuse. Rather, he gave every indication of being crazy. He was never able to give any account of himself or background which would enable the bankruptcy attorney to begin a case for him.
A last and timely musing, bankruptcy law is made up of the code which is passed by the United States Congress. Also, there are court cases that are heard by appellate courts. Only a married couple that consists of a lawfully married man and woman can file a joint petition. This is a result of the federal Defense of Marriage Act (DOMA). So when Obama chose to not defend DOMA in current ongoing lawsuits, because he personally decided that the Act is unconstitutional, it had no effect on those filing bankruptcy. At least not that anyone knows yet. So those are some bankruptcy musings for your consideration.
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