Six Ways To Safeguard Your Assets Before Filing For Bankruptcy


Bankruptcy is an unfortunate financial situation that many individuals and businesses face. Although the condition often looks bleak, you can safeguard your assets from creditors before filing for bankruptcy. The first step is to list your assets. Before listing your assets, you might check what categories they fit.

Types of Assets

There exist five categories of assets to consider:

  • Current assets
  • Fixed assets
  • Personal assets
  • Financial assets
  • Intellectual property assets

You must know how to categorize your assets to safeguard them before filing for bankruptcy which can be done with a list of assets. Here are six ways to avoid bankruptcy:

Exempt Some Assets

It is possible to exempt some assets from being sold or seized during debt recovery or bankruptcy. In the U.S., every state has its bankruptcy exemption provision. You might need to consult with your state’s legal provisions to find what assets qualify for an exemption. Bankruptcy exemption allows you to retain ownership of certain assets that creditors would otherwise take over. For example, you can protect personal property such as residential property, jewelry, tools of the trade, and motor vehicles. This exemption is not always granted, as applications are treated on a case-by-case basis. There is also a limit to the financial figure. E.g., $4,450 for your motor vehicle, $1,875 for jewelry, and up to $2,800 for tools of the trade. An individual retirement account (IRA) also qualifies for exemption. You may contribute a maximum of $1 million to the IRA at $3000 per year. If you have a retirement account sponsored by your employer, you can move all the money to your IRA even if it is above $3000. Exemptions are also granted for personal injury claims for up to $27,900.

Use Money in Your Bank Account

If you have money in your bank account, you can use them to purchase other assets that qualify for an exemption. For example, you can buy personal clothing, motor vehicles, furniture, pay mortgages, or even life insurance. Again, there is a limit to the amount of money you can spend this way, and it is best to check your state’s provision before making purchases. 

Get an Offshore Trust

You can use an offshore trustee to protect your assets by moving your financial assets to an overseas trust. There are no legal loopholes in this option. Although there are always controversies around the laws concerning offshore accounts, but the government will not forcefully recover your assets from such trusts.

Register Your Assets in Your Spouse’s Name

This option is another critical action that you should consider. Register your assets in your spouse’s name, and they will not be taken when you file for bankruptcy. There are limits and specific regulations to this. For instance, you may not gift assets or sell them at a lower value to your spouse. However, if the authorities discover this, you might be liable for legal action in addition to retrieving the asset. Another way to achieve this is by making a prenuptial agreement with your spouse, and prenuptial agreements are typically made before marriage. Prenuptial agreements define the sharing and owning of properties and generally are accepted and respected by the law. You may find a legal exemption for your assets during bankruptcy if you have one. It is important to remember that you might be at a disadvantage if you get a divorce.

Limited Liability Companies (LLCs)

An LLC is like a cover for your assets. LLCs house the assets of a business, and in bankruptcy, only your business assets will be affected. I.e., your residence and vehicles, etc. LLCs are protective entities that provide a legal way to keep your assets secured no matter what. When you put your assets in an LLC, your legal liabilities are reduced even during bankruptcy.

Alternate Dispute Resolution

Alternative dispute resolution or out-of-court settlement, as it is called, is another way to protect your assets from bankruptcy. It is possible, in some cases, to reach an agreement with creditors to settle out-of-court. It might be the best decision if you manage to get such an agreement. Alternative settlements are often more lenient than court settlements, and you may end up retaining most of your assets while working out a new repayment plan.

Why You Should Protect Your Assets

Bankruptcy is not the only reason why you need to protect your assets. In the event of an accident that you or your child is involved in, or one that occurs within your living space, a claimant may file claims for personal injuries, and you’ll have attorneys going after your assets. It is best to implement procedures that secure your assets before such events or filing for bankruptcy, a list of assets could be an essential document for use in this process. You might also need to consult a lawyer or financial expert for advice about safeguarding your assets.

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