Losing all the assets you worked hard for because you are facing bankruptcy should not always be the case. There are bankruptcy laws to protect you whenever you are in such a situation and several other ways you can save your assets. If you are in San Diego, CA and are in a high debt situation that collection agencies or creditors won’t stop harassing you, you are facing wage garnishment, property repossession or foreclosure, the best solution is to contact San Diego Bankruptcy Attorney Law Firm and we will advise you on what to do. Our attorneys will walk you through the different ways you can protect your assets during this period. We will provide legal advice on which is the best option thanks to our deep expertise in California bankruptcy laws.

How Do You Protect Your Assets During a Bankruptcy?

The state of California has set forth federal and states laws to protect residents against asset garnishment during a bankruptcy. Protecting your assets might seem to be in bad faith but there are legal ways to go about it. If you are facing bankruptcy, the best thing to do is file for bankruptcy under chapter 7, 13 or 11. These chapters contain steps you can take to protect your assets from your creditors. Generally, filing for bankruptcy causes an automatic stay to be put into effect. This means that all the collection activities of your collectors are put to an immediate halt. Any debt collection against you is put to a stop plus any future attempt to collect the debt. The automatic stay is lifted after your bankruptcy ends.

Other ways you can protect your assets include;

Preventing Wage Garnishment

Wage garnishment takes effect where you owe financial institutions, creditors, individual lenders or government agencies outstanding debts. When you are facing wage garnishment, the party that you owe takes a certain percentage of your earnings directly out of your paycheck. Your paycheck can be garnished at the highest 25%.

While this is usually thought of as the easiest method to repay your debts, most people are thrown further into debt by it. Thus, you can stop wage garnishment to protect your earnings if by paying the debt, you cannot afford basic necessities. There are five ways you can use to stop wage garnishment. They include;

Claiming exemptions

In California, the law permits debtors to file exemption claims in some situations as a way of stopping wage garnishment. To file for this exemption, you should be capable of proving that you are unable to provide basic needs for yourself and your family. You also should not be spending your money on entertainment or luxuries. In addition, you should prove that you have attempted to resolve your situation using other means like seeking additional employment. This measure might decrease the amount that is garnished from your paychecks but it will not eliminate the debt. This means that your debt will still accumulate interest.

Checking wage garnishment legality

Wage garnishment can be illegal in some cases because of its basis on incorrect information. These are rare cases because courts normally review petitions on wage garnishments before approving them. However, working closely with your bankruptcy attorney might help unveil any wage garnishment that is invalid.

File for bankruptcy

By filing for chapter 7 or chapter 13 bankruptcy, you can avoid wage garnishment permanently. Doing so will safeguard your earnings for the time the case is pending in court. Additionally, it stops creditors from collecting what you owe them. After the court discharges your debt, you will not owe money to these creditors anymore. However, filing for bankruptcy will not discharge debts like alimony, student loans, state or federal tax obligations, and child support debts.

In case you owe a credit card company, a hospital, a doctor’s office, an auto loan financer or any other creditor that can request for garnishment through legal means, filing for bankruptcy is one of the ways you can use to protect your wages and assets.

Come up with a repayment plan

If your creditors are pushing for wage garnishment on your paycheck, you can contact them and come up with a repayment plan that agrees with your terms. Most creditors will agree to this if you genuinely show that you are willing to repay your debt. Also, most creditors will want you to commit a certain amount which you will pay at regular intervals depending on your financial situation.

You can get a debt consolidation loan

This is one of the methods you can use to avoid wage garnishment. A debt consolidation loan is unsecured individual loan used to repay existing debts. In some situations, however, you may need to provide collateral like your car or your house to qualify for the loan. It is advisable you deal with a trustworthy financial institution when using this method to prevent wage garnishment. In case you can’t afford to pay back the consolidation loan, you should not use this approach because you will go further into debt.

Avoid Fraudulent Transfers

In case you have nonexempt property, bankruptcy planning may help you to legally secure them and keep them out of the creditors’ reach. However, attempting to transfer the property after filing for bankruptcy is not recommended. In some cases, the trustee in a chapter 7 bankruptcy can try to annul those transfers you make within one year of the bankruptcy filing. You should begin planning for a pre-bankruptcy period earlier, probably before you file for bankruptcy, rather than doing so after you have filed. This often protects your liquid assets.

Fraudulent transfers involve moving assets within certain time-frames before filing for bankruptcy. In line with this, any property moved immediately before filing for bankruptcy is thoroughly scrutinized by the trustee in chapter 7 bankruptcy. When you file for bankruptcy, there is a bankruptcy code that gives your trustee the authority to annul any transfers as well as to ask for the disapproval of discharge if he or she believes you attempted to defraud your creditors through transfers.

Advanced Planning on Bankruptcy

As we have seen earlier, it is best for you to plan for bankruptcy and pre-bankruptcy periods earlier and this includes drawing techniques you will use to protect your assets. Some of the ways you could do this include through equity reduction and trusts that deal with asset protection and accounts receivable financing.

Asset protection trusts

California is among the states that offer asset protection services through various trusts. Even better, you do not have to be a resident of the state to qualify for one. The trust should be operated by a self-governing trustee who will control all the distributions. The trust should also include spendthrift and irrevocability clauses.

In protecting assets, especially liquid assets, offshore trusts are more effective as compared to domestic trusts because an international element places property beyond reach by local courts. An offshore LLC is usually placed inside the trust as a remote control for a would-be debtor until they need the protection of the trustee. Because the trustee is overseas, the court cannot issue a domestic court order against him/her.

Accounts-receivable financing

Also referred to as factoring, this the best option for business owners. If you are one, it may be possible for you to borrow funds against the business’s account receivables. In case it is correctly done, burdening the forthcoming value of your business may cause your business liquidation unpleasant to your trustee. Accounts-receivable financing does not require collateral, either by property or a guarantor, for every loan you borrow. In addition, you get to keep your business ownership even if you want to acquire finances.

Equity Reduction

It possible for you to decrease equity in a property by restricting it financially. The restriction should be done with a justifiable and legitimate reason. The trustee can annul the restriction if it was lifted within a year of the bankruptcy filing.

Family Limited Partnerships

A family limited partnerships (FLP) is a kind of family partnership regulated by family members. Like any other limited partnership, an FLP comprises of two categories of partners; limited and general partners. The general partners regulate all investment and management choices and they enjoy 100% of the liability. Limited partners, on the other hand, cannot take up management roles and have little liability. FLP is not taxable. The owners instead report the deductions and income of the partnership on their individual tax returns in accordance with their interests.

An FLP is important since it protects property from creditors who come claiming repayment of a loan you have failed to pay. Whether you lose your limited partnership interest or not during bankruptcy is dependent on how the agreement of the partnership was made. If it was correctly drafted you will not have anything to lose. The trustee of the bankruptcy will only acquire the charging order remedy of your creditor. The trustee can, however, claim paid-in contributions from the capital that you are authorized to withdraw. It is advisable that an insolvent partner’s lawyer reviews any agreement concerning limited partnership just in case of a bankruptcy.

A general partner who is bankrupt doesn’t transfer his/her managerial powers to his/her bankruptcy trustee. However, the bankruptcy may, in several ways, lead to the disruption of the smooth running of the family partnership. It is, therefore, recommended that a general partner who is bankrupt be replaced.

Prevent Home Foreclosure

Home foreclosure is the process where a creditor tries to recover a loan balance by forcing the sale of the assets that you used as collateral because you stopped paying the loan. If a home foreclosure were to happen, the creditor assumes the ownership of your assets. This would mean that all that you paid for the mortgage is lost together with your home. You can prevent home foreclosure by filing a lawsuit against your creditor in either a state or a federal court. After you file the suit, the judge will serve the creditor with an order not to proceed with the foreclosure. Alternatively, your lawyer seeks to minimize mortgage payments and this will, in turn, reduce the weight of repaying your debts.

Options for preventing home foreclosure

There are several options that can enable you to stop home foreclosure. They include forbearance, loan modification, refinancing, pre-closure, a deed instead of foreclosure, and partial claim.

Forbearance happens when your creditor makes the paying arrangements. This eases payments or suspends it until you are better off financially to continue. This, however, is done in a situation where you only have a temporary hardship. This step will benefit you because you will only repay the loan when you are financially stable and capable of doing so.

Loan modification is an important step in helping to prevent home foreclosure. This involves negotiating with the creditor to distribute the loan over a long time-frame. This option is used only if you haven’t overstayed before you pay the home debt. The option is also advantageous since you will pay the exact amount you owe but the payment period will be extended. This will enable you to pay the debt comfortably rather than seeing it as financial pressure.

Refinancing could minimize payments and enable you to get on track. Using the refinancing option may, however, require you to demonstrate that you are capable of making the payments. You have to be up-to-date when it comes to home loans. Your creditor can also prevent your home foreclosure with this option. They can do this by placing you on an interest-only home loan. This reduces mortgage costs making it simpler for you to comfortably repay the loan.

Pre-closure is a method that needs the cooperation of your creditor. It involves selling your home cheaply than the original price as your creditor will direct. This enables you not to have deficiency judgments later. Even though you might seem to have incurred a loss when you sell your home cheaply, this step will help you to stop foreclosure.

A deed instead of foreclosure involves transferring of your assets to your creditor. The creditor will then forego your mortgage duty. The transfer has to be voluntary and you and your creditor should have reached the agreement. Doing this eliminates any individual responsibility for the unpaid mortgage.

Partial Claim is also called a second mortgage. This will be beneficial to you because there is no interest involved. You aren’t obligated to pay the second loan except if you don’t own the assets any more or if you have cleared the first mortgage. You can utilize this option to pay your debts thereby avoiding home foreclosure.

Stripping Out Your Liens

This is one of the lucky options homeowners can use to save their assets. It is an option you can use if the original loan exceeds the worth of your home. This could be because the value of your home has depreciated. If this is the case then the second mortgage is unsecured since it has no liens to attach to. Since it is not eligible for its lien protection as per the bankruptcy laws, it will be eliminated as long as your bankruptcy adheres to the requirements of chapter 13 bankruptcy. After the elimination of the mortgage, your home will not have the second mortgage anymore and it will start regaining its equity and be valuable again. 

Stripping out liens works only with chapter 13 bankruptcy. Therefore, to qualify for this option of asset protection, you must qualify to file for bankruptcy under chapter 13, the value of your home should be less than your initial mortgage and there must be a second mortgage lien to your home.

Here is a case a scenario. Let’s say your home is valued at $450,000 but your first mortgage debt is $500,000. This means that you owe $50,000 more. Additionally, if you have a second loan worth $50,000 and placed your home as collateral, it means that your home is $100,000 underwater. If you want to protect your home, you will need to file for bankruptcy under chapter 13 then strip out the second mortgage and continue repaying the first mortgage. Under chapter 13, the second lien is considered unsecured. Thus, if your repayment plan is to pay 20% to the unsecured debts, only 20% will be paid to the second lien throughout the plan.

After complying with your repayment plan and have made all payments, your second mortgage will be discharged and removed from your home.

Find a Bankruptcy Attorney Near Me

Bankruptcy laws can be a bit complicated for a layman. It is, therefore, crucial that you work with the best-experienced bankruptcy attorney who understands the process and can walk you through it. At San Diego Bankruptcy Attorney, we have lawyers who will not only make you understand the process but will also advise on the best measures and the bankruptcy claim you can file to effectively protect your assets. We have helped many people in San Diego and other surrounding cities who can attest to our professionalism. Call our San Diego Bankruptcy Lawyer at 619-488-6168 to schedule your case assessment and know exactly what your options are.