Transferring assets

[lisac77]

We are considering filing bankruptcy with a very short window of time to work with (I have cash bonuses coming in in Feb and March that we need to keep out of the estate, thus the urgency). The reason we're filing is due to business insolvency - DH was injured in an armed robbery and the thing isn't making money anyway, so BK here we come, so to speak.

DH has some cash that he is unwilling to spend. He wants to keep the cash. I've tried to convince him to just spend it on necessities (home repairs, etc.) but he really, really wants to just buy an asset that he can turn around and sell after filing. We're in TX, and we're allowed two cars under the exemption scheme, so DH came up with a plan.

He wants to "sell" one of our cars to a friend of his. There will be a bill of sale and a transfer of title. This person is not a relative or business associate. We will keep using the car and keep it at our house. Then he'll buy an expensive car that we can protect under our exemptions, which he'll then put up for sale after BK. We'll also transfer the title back to our names of the original car after the BK.

I know it's not 100% above board, I know it's not "the right thing to do" but DH is threatening to not file bankruptcy (i.e. continue to piss away our money to the business and business loans) if he can't keep his money. He's being emotional and irrational and I'm just trying to figure out a way for him to have his cake and eat it too.

Any help would be appreciated.

[Spartan]

If his friend is reliable (yike) and he gets the numbers match up correctly, it may work. They may look at the fair market value of the cars involved in the transaction. If the numbers are within reason, hmm...

However....

There is this problem with paper trail at the bank where he has the money deposited. Don't they want 6 months of bankstatements? I could be wrong there. Is it 6 months of pay stubs and 2-3 months of bankstatement? I am a bit fuzzy on that, as I personally have neither one.


If the numbers are within reason, it may work.

For example. Let's say your current car is worth $2000. So you 'sell' it to his friend for $2000. Then you take the $10000 from the bank, and go buy a $12000 car. (There is however the minor inconvenience of how to buy a $12000 car with only $10000. )

While technically, you would have converted a non-exempt asset into an exempted asset. That may be considered fraudulent transfer, depending on your state law. However, since that exempt asset is a basic necessity, you get some leeway in that.

Check with your lawyer. It may work. You don't need to tell them about the details regarding the 'sale' of your current car. They cannot be a party to THAT. So, spare them the problem. (Or you can ask them about such hypothetical scenario, hypothetically speaking. ;) ) You can just explain what you plan to do with the proceed. And they can tell you if the new car purchased with the proceed and the bank saving, is protected by exemption.

[Spartan]

Texas exemption for personal properties :

Athletic and sporting equipment, including bicycles; 2 firearms; home furnishings, including family heirlooms; food; clothing; jewelry (not to exceed 25% of total exemption); 1 two-, three- or four wheeled motor vehicle per member of family or single adult who holds a driver’s license (or who operates vehicle for someone else who does not have a license); 2 horses, mules or donkeys and a saddle, blanket and bridle for each; 12 head of cattle; 60 head of other types of livestock; 120 fowl; and pets to $30,000 total ($60,000 for head of family)


That plus unlimited homestead exemption.

I am going to move to Texas... if not for the damn summer weather....

[lisac77]

Spartan, yes, I'm worried about this, too. I'm sure, to make it legitimate, actual money would have to change hands, and that was not part of the plan. I've explaines (and explained, and explained) why we can't just transfer stuff but he doesn't want to hear it. It's driving me nuts, to be quite honest.

[SinkingFast]

It's the most recent 2 months of bank statements, Spartan, that the Court sees. But you have to disclose all sales and transfers of assets within the year prior to filing BK.

I sold my diamond wedding ring and stud earrings last Nov. I saved the receipt, oddly enough. The check from the jeweler went straight to the bank. And you could see where the money was spent out from there.

We sold our truck in March to pay the IRS. We got a sales receipt from the Dealership, the Dealership paid off the loan, the extra money was deposited straight into the bank, and a check written right back out to the IRS.

All this stuff was declared in our BK paperwork with all receipts, Paid in Full loan agreement, and associated bank statements attached.

With finnaggling the likes LisaC is contemplating, there'd better be a darned good paper trail. Especially this close to filing.

CYA yourself, LisaC. Document. Document. Document.

[lisac77]

I think we can do this, but with a slight twist on his plan. Sell all the excess cars (we have 5 cars total, under the exemption plan we can keep 2). They are all cheap cars, worth less than $4000... we buy our cars at auctions and keep an extra one so we don't have to rent if one needs repairs.

So we go ahead and buy a slightly used car with some of our cash, and sell the other 4. Then we let that used car sit as much a possible, and put miles on the last car that we kept. We'll have to drive the newer car a little, but we won't run up the miles like crazy.

Then after BK, when DH has a job, we'll save up some money and buy another auction car and sell the slightly used car. We'll probably be able to get most of our money back... not all of it for sure, but most of it. That way he could get his money, and we could do everything legally, which is really important to me.

[Spartan]

It's the most recent 2 months of bank statements, Spartan, that the Court sees. But you have to disclose all sales and transfers of assets within the year prior to filing BK.

I sold my diamond wedding ring and stud earrings last Nov. I saved the receipt, oddly enough. The check from the jeweler went straight to the bank. And you could see where the money was spent out from there.

We sold our truck in March to pay the IRS. We got a sales receipt from the Dealership, the Dealership paid off the loan, the extra money was deposited straight into the bank, and a check written right back out to the IRS.

All this stuff was declared in our BK paperwork with all receipts, Paid in Full loan agreement, and associated bank statements attached.

With finnaggling the likes LisaC is contemplating, there'd better be a darned good paper trail. Especially this close to filing.

CYA yourself, LisaC. Document. Document. Document.

Thanks SF. Eventhough it doesn't apply to my own bk case, I shall make a note of the info.

Very good advice. Paper trail and document to CYA is absolutely important, when the burden of proof is on the filer.

[Spartan]

I think we can do this, but with a slight twist on his plan. Sell all the excess cars (we have 5 cars total, under the exemption plan we can keep 2). They are all cheap cars, worth less than $4000... we buy our cars at auctions and keep an extra one so we don't have to rent if one needs repairs.

So we go ahead and buy a slightly used car with some of our cash, and sell the other 4. Then we let that used car sit as much a possible, and put miles on the last car that we kept. We'll have to drive the newer car a little, but we won't run up the miles like crazy.

Then after BK, when DH has a job, we'll save up some money and buy another auction car and sell the slightly used car. We'll probably be able to get most of our money back... not all of it for sure, but most of it. That way he could get his money, and we could do everything legally, which is really important to me.

I think it is best not to involve any friend. The fewer loose ends, the better it is.

So, if you sell 4 cars, use the proceed, plus the cash saving, and buy the better used car. Now, you would have a proper paper trail and proper document.

If you shop for a brand that retains its resale value well, such as most Japanese brands (eventhough I hate to admit it), things should work out reasonably well.

I can sympathize with your man. Having the money, is in a way, a security blanket.


I would still run it by the lawyer, to makesure it is foolproof. Everything is legal. It should be all kosher. The creditors wouldn't like it. But who cares?

Best of luck. Keep us updated.

[Spartan]

Spartan, yes, I'm worried about this, too. I'm sure, to make it legitimate, actual money would have to change hands, and that was not part of the plan. I've explaines (and explained, and explained) why we can't just transfer stuff but he doesn't want to hear it. It's driving me nuts, to be quite honest.

Well, we do get terribly frustrated with our signficant others at times. Best to take a step back. Breathe and ease off. Sometimes, you just have to ease off and let people come to their senses on their own. Pushing too hard, just doesn't work. I realize that it is just too damn frustrating when you see the facts and logic as clear as daylight and there you are, trying with all your might, to get the stubborn horse to drink from the river, while it would rather die of thirst. lol

Despite all their obvious flaws, we picked them b/c they do have redeeming values that attracted us to them in the first place. When you are mad and pissed off, you tend to forget about those. Sometimes it helps to step back and look at things from a different angle.

When this is all over and done with, it will be all good again.

[HHM]

I hope you will let us know how the prosecution by the U.S. Trustee goes...we don't get many people who post here that get indicted for bankruptcy fraud.

All kidding aside, I give the plan about 50/50, because your dealing with a business in the first place, your case will be more scrutinized than most. Although the standard request for bank statements is 2 months, the trustee has the right to request up to 2 YEARS worth.

The simple fact of buying a "NICE" car after dumping a couple older car right before filing will probably raise a red flag in itself.

In any event, you need to have a paper trail, "real money" needs to change hands. As a practical matter, if he wants to be able to resell the car for about what he paid for it, he needs to buy "USED". Your best bet is probably a 2 year old Lexus (if you have enough money), or a 2-4 year old Honda or Toyota.

[lisac77]

I hope you will let us know how the prosecution by the U.S. Trustee goes...we don't get many people who post here that get indicted for bankruptcy fraud.

All kidding aside, I give the plan about 50/50, because your dealing with a business in the first place, you case will be more scrutinized that most. Although the standard request for bank statements is 2 months, the trustee has the right to request up to 2 YEARS worth.

The simple fact of buying a "NICE" car after dumping a couple older car right before filing will probably raise a red flag in itself.

In any event, you need to have a paper trail, "real money" needs to change hands. As a practical matter, if he wants to be able to resell the car for about what he paid for it, he needs to buy "USED". Your best bet is probably a 2 year old Lexus (if you have enough money), or a 2-4 year old Honda or Toyota.

Our lawyer said that buying a slightly used Camry is a safe bet. In fact, every lawyer I've talked to says that cars are a legitimate expense and that we SHOULD be able to get away with it, and it's all legal and above board. As one lawyer said to me, "It's better to beg forgiveness than to ask permission."

I am trying to back off, but it is difficult because we have so little time and so much riding on this situation. I hate this.

[Spartan]

I would say buying a Camry is a safer bet, legality wise, than buying a Lexus. You are less likely to piss off the trustee, if you get a Camry, vs getting a Lexus. lol

It is all legitimate, and you have a very strong case when you get rid of a few less reliable cars, and get a more reliable car. So it should be ok. The paper trail should be no problem. It is all legal.

Good luck. It will work out fine.