Converting Non-Exempt Asset to Exempt Property Pre-Filing Ch. 7?

[aharris23]

I have a client who will be filing a Ch. 7 around March 20 (that date in
order to postpone a foreclosure as long as possible). Debtor has about
$60k in unsecured debt, and will most likely walk from the home
(underwater). He is self-employed, and owns a truck worth $3k, which we
will exempt, and also a owns a truck outright worth around $23k. He
just received an offer from a bona-fide purchaser in WA to buy the truck
for $21k, which is definitely market value, not fraudulent or an inside
deal in any way.

My question is, when he receives that $21k, what would you feel safe in
advising him what to do with it? I know that one can use the cash to
pay ordinary and necessary bills and expenses. Also, one can sell
nonexempt property and replace it with exempt property (he can buy
clothes, household furniture, etc., up to his exemption limits).
However, this is a rather sizable sum. What if he put $15k into an
exempt retirement plan? This is replacing non-exempt with exempt property, but
does not look good. I know that if the trustee thinks one is trying to
defraud creditors, he may ask for the $$ from the transaction, and may
even not allow a discharge. Also, since the truck is associated with
his self-employment business, can he use the proceeds for monthly salary
for himself?

So, wondering how you all would advise the client about the funds
received from this transaction, about 90 days out from filing the Ch. 7.
This is a rather gray area of the law, often depends on the trustee so I truly appreciate your first-hand
experiences and advice for this type of situation.

Thanks,

Andrew

[btbeme]

If he normally puts $15k into his retirement plan around this time every year, that is a good idea. If not - bad idea.

Paying ahead a month on bills and mortgage - not a bad idea. Paying two months ahead - bad idea.

Paying 150% of his normal utilities for the next 3 months will likely escape notice. The monthly allowance in your state for food for his size family x 6 months - good idea for a Costco run. Winter clothing - good idea (no designer brands). How do Trustees view gas cards in your state? Most consider them to be cash, so ...

Fuel and provisions for 6 months - propane, gasoline, firewood, etc., stored locally - good idea. Servicing vehicles (tires, fluids, brakes, alignments, lights) - good idea. Insurance for next 6 months (even if not due for another few months) - probably OK. School costs - lunch cards, field trip expenses - pay 'em. Normal household maintenance - carpets cleaned - do it. How about a term life insurance policy?

Legal fees? Some REASONABLE Christmas gifts to kids/spouse/Mom? Next size shoes for the growing kids? Auto registration? Hunting license (if he does so every year)?

If I were a Trustee, I would agree with food, shoes, insurance...but probably not a new bedroom set or TV, exemptable or not. I'd wonder what else I would have to look in to, especially for a self-employed person (which carries its own red flags), if I saw those.

I found a way to dispose of approximately $16k in about 45 days, all legit.

[despritfreya]

I have a real concern over OP's post. OP state that he/she has a "client" and wants to know how to advise the client. I am pretty sure Oregon has an "unauthorized practice of law" statute so I sure hope OP is not breaking the law.

If OP is not a licensed attorney, OP should not be advising the "client" on anything, let alone how to spend non exempt funds.

If OP is an attorney posing such questions to a “consumer” oriented forum makes little sense when attorneys have (free) access to a "roundtable" forum where they can ask other attorneys how they handle matters. Better yet, an attorney can pull up the State Bar directory and find a local attorney to bounce questions off of.

Des.

[tcreegan]

Hi Andrew,

I am going to go along with des, and yourself actually:

often depends on the trustee so I truly appreciate your first-hand experiences and advice for this type of situation.

Your client needs someone who knows the local trustees and their practices, ethically I think you need to either pass your client off to, or consult with, an attorney who is already familiar w/ the trustees.

You are more than welcome to post here about your BK experiences, share your knowledge, ask questions, but nothing here is legal advice....strictly amateurs!

Tom in Colo

[frogger]

I think some smack-down action just went on.........