Involuntary Bankruptcy Is Like The Swine Flu
Client from Montana with the usual collection of real estate problems. He guaranteed a multi-million dollar loan on a failing real estate project, and the very unhappy partners were threatening legal action. I invited the man and his money down to Florida. We discussed the typical asset protection plan including a big and expensive homestead, joint accounts, and places to legally park money where its difficult for creditors to touch it.
At the end of the conversation the client asked me what would happen in the event his creditors sought an involuntary bankruptcy. I told him that an involuntary bankruptcy would be bad news because the bankruptcy court could set aside his homestead protection (homestead rules are different in bankruptcy court), and the trustee could force him to turn over other assets that would be protected, at least difficult to get, in a state court collection.
The client was somewhat upset that my asset protection suggestions could not protect him against all possible creditor outcomes, and particularly, he demanded that I give him a way to avoid the consequences of involuntary bankruptcy. I told him to buy time by fighting all civil lawsuits, but I could not protect his planning from a bankruptcy trustee.
In the end, I was able to convince this client that involuntary bankruptcy was highly unlikely with his particular fact situation. I explained that involuntary bankruptcy is like the swine flu. Remember that earlier this year people on TV were warning us about the millions of people who could die from the worldwide swine flu epidemic, and political commentators complained about vaccine shortages; and here we are during flu season, and the TV horror stories are gone. I saw another TV story where there is a surplus of swine flu vaccines- they can’t give the stuff away.
Involuntary bankruptcy is sort of like a bad dose of swine flu. If you catch it you may be very sick, but in reality, very few people are contracting a serious case of swine flu. Lots of debtors fear involuntary bankruptcy. However, in reality, there are few involuntary bankruptcy cases. Maybe there are more than there used to be, but the number is still a very small percentage of the large number of insolvent debtors in today’s economy. There are many reasons why involuntary bankruptcy is infrequent- these factors are for another discussion. In asset protection planning, involuntary bankruptcy is one of those small risks you have to live with. There are ways to fight it, there are ways to minimize it, but no asset protection plan immunizes debtors against this disease. Get over it and do the best you can to protect against creditors.
