Asset Protection vs. Bankruptcy: What Should I Do?
Clients often ask, “Should I file for bankruptcy or set up an asset protection trust?” Asset protection is a strategy that individuals and businesses can use to protect their assets from creditors, lawsuits, and other potential threats. Bankruptcy, especially Chapter 7 bankruptcy, lays all non-exempt assets out on the table for the creditor to take away from you.
By living the asset protection lifestyle, on the other hand, you keep everything or nearly everything. With Chapter 7 bankruptcy, you lose nearly everything.
Chapter 13 bankruptcy means the courts take a chunk of your ongoing income. Plus, it means ongoing attorney’s fees. It’s like a three to five year financial prison sentence.
An asset protection plan involves setting up legal structures, such as asset protection trusts, limited liability companies (LLCs), and international bank accounts. These tools help shield assets from creditors and protect them for the trust beneficiaries. Later, I’m going to show you what living the asset protection style looks like.
Asset Protection & Bankruptcy Experience
In my over three decades of experience and as the CEO of Lawyers Limited, I’ve dealt with both both the bankruptcy and asset protection industries. So, I have seen it from both sides. Bottom line? If you have little to no assets, fine. Filing bankruptcy may be an option. But for those with assets to lose, bankruptcy is almost always a knee-jerk reaction to fear and panic, and is almost always a mistake; a big mistake. Here’s why.
The disadvantages of bankruptcy are as follows:
- Bankruptcy trustees have tremendous power: They have the authority of federal law instead of state law. So, they have much more control over your life than your typical judgment creditor. I’ve seen chapter 7 bankruptcies drag on for two years or more. Moreover, unlike most attorneys, who get paid by the hour, bankruptcy trustees get a piece of whatever they collect from you. Plus, they can justify taking a bigger chunk or your assets the longer it takes to get them. On top of that, bankruptcy trustees usually have vast experience at sniffing out assets. Their main incentive is to find debtors with deep pockets. They have an incentive to do as much financial damage to you as possible and put as much of your money as they can into their own pockets.
- Bankruptcy judges have x-ray vision: Okay, federal judges really don’t have the eyes of Superman. But they have highly-tuned perception to spot a lie. Don’t think you can fool them. If you have assets you are hiding, or are not telling the truth on any matter, rest assured, they will find out. And don’t be surprised if they rip you a new orifice for trying to do so. What’s the difference between God and a federal judge? God doesn’t think he’s a federal judge.
- Damage to credit your score: One of the most significant disadvantages of bankruptcy is the impact it can have on your credit score. When you file for bankruptcy, it will remain on your credit report for up to 10 years. This can make it difficult to get credit in the future. This can be a significant issue for people who need credit for important purchases such as a home or car.
- Loss of property: Depending on the type of bankruptcy you file, the law may require you to give up some of your property in order to pay off your debts. This can include things like your home, car, bank account, investments and other valuable assets. While bankruptcy laws do provide exemptions for certain types of property, such as household goods and personal items, you may still lose many of your valuable possessions.
- Your reputation: When you file for bankruptcy, your name gets plastered all over the Internet. It’s public proceeding. There is often a social stigma people attache to bankruptcy. For instance, some people may view it as a sign of financial irresponsibility or failure. This can be embarrassing Plus, doing so can make it difficult to rebuild your financial reputation as news of your bankruptcy circulates through the rumor mill.
- Limited options: Depending on the type of bankruptcy you file, lenders may be limit the types of credit they grant you in the future. For example, if you file for Chapter 7 bankruptcy, you may only be able to get high-interest loans or credit cards with high fees. This can make it difficult to get the financing you need for important purchases or to rebuild your credit.
- Legal fees: Filing for bankruptcy can be a costly process. In addition to the loss of income and assets, you will also need to pay legal fees and other costs associated with the process. This can be a significant burden for people who are already struggling financially.
- Loss of future income: In some cases, bankruptcy may result in the loss of future income or assets. For example, if you file for Chapter 13 bankruptcy, you may be required to pay a portion of your future income to your creditors. This can make it difficult to save money or make important purchases in the future.
- Emotional stress: Filing for bankruptcy can be a highly emotional experience, and it can be difficult to cope with the financial and personal consequences of this decision. The process can be stressful and overwhelming, and it can take time to recover emotionally and financially. Plus, the stress can last for many years beyond bankruptcy.
It’s important to carefully consider the potential disadvantages of bankruptcy before making a decision. While bankruptcy can provide relief from overwhelming debt, it’s not the right solution for everyone. If you’re considering bankruptcy, it’s a good idea to speak with a financial professional or a bankruptcy attorney to get a better understanding of the potential drawbacks and whether it’s the right decision for you. Nothing in this article is legal or tax advice. It is for general information only. So speak with an attorney and CPA. We do have asset protection attorneys on staff as well as attorneys who have specialized in bankruptcy. You can call and speak to right now during business hours. Alternatively, you can fill out a free consultation form on our website.
Asset Protection Benefits
There are several benefits to using asset protection strategies. So, let me tell you why so many of our clients choose to live the asset protection lifestyle instead of allowing a lawsuit to strip them bare of their worldly possessions.
- Keep your assets: Asset protection strategies can reduce or eliminate the risk of losing assets to creditors, lawsuits, divorce, and other threats. For example, you get a judgment against you. You set up an offshore asset protection trust. You put your money into it. Then you have our offshore law firm/trustee company stand guard over your assets. They are not subject to your local court orders. So, they can step in to protect the funds as needed.
- Financial security: Asset protection strategies can provide financial security for the owner and their family. It helps ensure that their assets are protected and can be passed down to future generations.
- Protects future value: Say you have $500,000 of investments. At 10% annually, that money doubles every seven years. In 21 years, that $500,000 is now worth $2 million. So, you’re not only protecting what your assets are worth now. You’re protecting what they will be worth in the future.
- Tax benefits: Some asset protection strategies, such as our trusts and LLC, can offer tax benefits. LLCs can deduct business expenses. Trusts can reduce estate taxes and provide more money to pass on to loved ones tax free. Otherwise, most of our asset protection structures are generally tax-neutral.
- Peace of mind: You know or can imagine how stressful a lawsuit can be. Using asset protection strategies can help you sleep like a baby; knowing no matter what happens your assets can be safe and secure.
- Negotiation power: Most lawsuits settle before going to trial. Protecting your assets early in the game puts you in a position of negotiation power. This is because your creditor can see they would otherwise receive little to nothing. But if your assets were out in the open there would be little incentive for your opponent to negotiate in your favor.
- Makes collecting from you difficult or impossible: Attorneys want fast paydays. If they have easy prey, like most people, they will opt for easier targets. If you are proven judgment proof, the attorneys are incentivized to leave you alone. They will be more likely to go for the low hanging fruit of another opponent that doesn’t have an asset protection plan in place.
Asset Protection Lifestyle
An asset protection lifestyle looks like this. For those with significant assets, we often set up an international asset protection trust in the Cook Islands in the South Pacific or in Nevis in the Caribbean. Inside of the trust, we place Nevis LLC. The LLC holds the bank account. You are the initial signatory on the bank account. Our law firm / trustee can step in as LLC manager to protect you if needed. The trustee law firm is licensed and bonded. By licensed we mean they went through intensive background checks to get a license, By bonded we mean the funds are insured.
Transparency International says the most trusted, least corrupt jurisdiction in the world is New Zealand. It’s is tied for number one. Cook Islands is part of New Zealand. So, Cook Islands / New Zealand is the most trusted country. The United States, on the other hand, is the 27th most trusted on the list.
The US courts say “give me the money.” Our law firm in the Cook Islands say, “Sorry, you don’t have jurisdiction down here.” You can log in 24 hours a day to see your money online. You can access your funds, pay bills, get cash from an ATM, buy groceries, etc with a debit card. Send wire transfers as needed. So, living an asset protection lifestyle means you have access to the money but your enemies at law do not.
Asset Protection or Bankruptcy, Not Both
For most people it’s an either/or decision, not both. Setting up an asset protection trust and then immediately filing bankruptcy doesn’t work. This is because the trust must be set up and funded for 10 years before a judge will grant a discharge of debts in chapter 7 bankruptcy.
So, filing a Chapter 7, Chapter 11, and Chapter 13 bankruptcy may seem to provide relief. But there is so much additional pain associated with it that it is almost always a big “no-no” for those with assets. Naturally, the bankruptcy attorney isn’t going to likely tell you this. He or she wants a payday. But by protecting your assets and living the asset protection lifestyle, you may be able to keep all or most of what you have. That is, you keep what’s yours rather than having to experience the long-term pain that is often associated with bankruptcy.
Asset protection can give you peace of mind so you can sleep well at night. Plus, attorney Jay Mitten said that most people encounter seven lawsuits in their lifetimes. A well-structured asset protection plan can not only protect you from this lawsuit. It can also protect you from unforeseen lawsuits that may very well happen down the road. So, if keeping all your assets and being financially bulletproof sounds good to you, give us a call at 1-954-400-1050 or fill out a free consultation form on this page.