Bankruptcy filers can do this but the asset actually needs to be gone on the day of filing. For example, if a debtor has $10,000 worth of non-exempt stocks rather than having the bankruptcy estate liquidate the stock during the bankruptcy, the debtor can liquidate the stock prior to filing and use the funds.
In our example the debtor liquidates his non-exempt stock and uses the $10,000 in the following way: pays for $1,000 worth of propane, pays 6 months ahead on his car payment worth $3,000, buys $1,000 worth of gift cards, gives $2,000 to his daughter, hides $2,000 and uses $1,000 for groceries, bills, other necessities. Has our debtor solved his non-exempt asset problem? No, but he has definitely complicated the situation. The propane, the car payments and the gift cards, are still assets owned by the debtor. He has just converted the asset to something less liquid, but it is still a non-exempt asset owned by the debtor.
The hidden funds-it is never a good idea to lie about an asset-you will be asked to testify under oath that you have listed all your assets. And the gift to the daughter, that is a preference, and it will likely result in your daughter being sued by the bankruptcy estate. In our situation, the debtor has only successfully spent $1,000, and will owe the bankruptcy estate $7,000 and has also exposed his daughter to a lawsuit.
Bankruptcy planning is expected, but simply converting assets to a less liquid form or giving the funds away or purely lying about having the asset, is not bankruptcy planning.
When bankruptcy planning, ask yourself, who is benefitting from this transaction, the answer should be you, the debtor, and then ask does the asset still exist or did I just convert the asset into another asset. Contact the attorneys at Kain and Scott and see us at www.kainscott.com. You will be glad you did!