Convert Non-exempt Assets to Exempt Before Filing Bankruptcy?

Can you convert non-exempt assets into exempt assets before filing bankruptcy?

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Question:

I am considering bankruptcy filing. I understand that the trustee may sell my non-exempt assets and use the sale proceeds to repay my creditors. Few of my assets which fall under the category of non-exempt assets have a high sentimental value attached to them. Can I covert these assets into exempt assets to prevent them from being liquidated in bankruptcy?

Answer:

With proper, thoughful bankruptcy planning, it is possible to convert non-exempt assets into exempt assets prior to filing for bankruptcy. But such planning is complex and must be done only with the help of an attorney.

Generally debtors have the right to convert non-exempt assets into exempt assets before filing. It is well established that under the Code the conversion of non-exempt to exempt property for the purpose of placing the property out of the reach of creditors, without more, will not deprive the debtor of the exemption to which he otherwise would be entitled.

The debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition. The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law. There are limitations on this right to convert non-exempt to exempt assets. The debtor covert non-exempt assets into exempt assets with intent to defraud hinder or delay creditors.

Talk to a Bankruptcy Lawyer before you do anything so you can get legal advice regarding how to protect your assets and make sure you keep your property without risking bankruptcy fraud.

References:

Pre-Bankruptcy Exemption Planning

Posted by Patrick Elaw on 08 Apr 2010

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