Should I transfer my home into an llc (limited liability company) to protect it from creditors before I file for bankruptcy?


If you are meeting with an asset protection attorney, and he is advising you to transfer various assets and properties into an llc, or into some kind of trust, then you’re probably not a good candidate for bankruptcy anyways. You need a different kind of lawyer for a different kind of case.

In bankruptcy, I can protect various assets under state exemptions that exempt (protect) your belongings. For instance, under Utah law, we can protect $3,000 of the equity in your car from creditors, 100% of your food storage, and $45,100 of your home’s equity under the Utah Homestead Exemption. But, and this is a big BUT, I can only protect property that has your name on it.

So if you transfer the home out of your name and into an llc, the llc cannot claim any kind of exemption in the value of your home. And if you own the llc, then you now own an llc that owns a home with no homestead exemption.

And now you’re thinking, “but what if I transfer the property into an llc that is owned by someone else?” Well, this is a fraudulent transfer. A “fraudulent transfer” is when you transfer ownership of something for less than fair value. So if you give your home to an llc in your friend’s name, and you receive no fair compensation, that fits the definition. The bk trustee can then “avoid” that transfer and put the property back in your name. However, since your name wasn’t on it when you filed the case, you cannot claim the homestead exemption.

Either way, you shot yourself in the foot to the tune of $45,100 of equity that you could have protected if you kept the home in your name. The trustee might want to sell your home to cash out that equity.

Just yesterday, I had a potential client call who had about $300,000 of equity in his home. He also had at least $200,000 of angry creditors threatening to sue him. Because of the equity in his home, he transferred it to an llc he had just created, and recorded the transfer with the Salt Lake County Recorder. He did this on Monday and then called me on Tuesday. When he called me, he was feeling pretty proud of himself.

I told him that I could not help him. The potential equity issue in his home was bad enough, but when you throw in fraud, that is not my kind of case.

If you want to protect your assets, you should talk to an attorney before you do anything as drastic as transferring ownership to someone or something else.

Does my United States bankruptcy discharge my online Canadian payday loan?

No. Canada is not governed by the U.S. Constitution. (They’re actually a separate country). A U.S. bankruptcy affects U.S. debts.

That being said, there are a few needlessly academic explanations that I need to give.

The U.S. Bankruptcy Code is limited to states/territories/provinces/(maybe tribal reservations) who are part of the United States of America. For example: if you file bankruptcy in Utah, it will discharge your payday loan you took out in Florida last year.

However, you can now take out online payday loans in Canada which are then deposited directly into your bank account. You can try listing this Canadian entity in your U.S. bankruptcy, but you’ll still owe the money in Canada. I just had a client try to list Rapital Capital (based out of Quebec). I told him we’d try, but that it wouldn’t do much. That being said, if they have any American arms (branches), you should be able to discharge the debt and stop collection proceedings here in the U.S.

Back in the old days of bankruptcy, I had a client who was an airline pilot who took out a payday loan in Canada. He defaulted, and they sued him in Canada, obtaining a judgment. We filed bankruptcy and listed them. A few months later, they levied his bank account based on that judgment. I was shocked. He banks with U.S. Bank, which seems to imply that the bank account is in the U.S. I was wrong. U.S. Bank has branches in Canada, and they used that Canadian judgment to levy his Canadian branched bank account.

It’s complicated.

The best way to handle this is to NOT take out any online payday loans. That being said, if you really need to, definitely don’t make a contract with a foreign entity. I don’t know Canadian law: for all I know, they’ll still be able to collect the debt. Maybe if you enter Canada itself, they’ll be able to arrest you and brand your forehead with a maple leaf to show that you failed to pay your Canadian debt. (Probably not, but you never know).

What happens to my 2022 tax refund if I file bankruptcy in 2023?

You lose it, unless you spend it first. If you look below, there is a fairly comprehensive list showing how you can spend those refund monies.

(No, you can’t save it. No, it’s not protected government aid money to you. You must dispose of it before filing bankruptcy!!!).

Each year, I update this post. Last year, we had pandemic tax refund monies that changed the calculation. This is not the case in 2023.

Here is last year’s post: What happens to my 2021 tax refund if I file bankruptcy in 2022?

Some states will give you an exemption to protect your tax refund monies. Utah is not one of them. In fact, in most states, you have to use it or lose it. If you

If I file for bankruptcy, how will it affect my spouse?

Hopefully, it won’t affect your spouse at all. Your bankruptcy case is filed under your name and your social security number and only affects your credit. However, there are a lot of caveats to this.

That’s why you really, really need to talk to an attorney and disclose everything before you decide whether or not to file.

Income — Even though you’re the only one filing bankruptcy, we still need to look at household income. Your spouse’s income may push you over the brink of a simple chapter 7 case into a more complicated chapter 13. And yes, you will have to provide at least a couple of your spouse’s paystubs, or your case will eventually be dismissed.

Credit — Your bankruptcy only affects your credit. If any kind of “bankruptcy” notation shows up on your husband or wife’s credit, they need to dispute that immediately.

Prior filings — If your spouse has a prior bk, this does not affect your case (unless you filed that prior case together).

Buying a home — If you have filed bankruptcy, you will have to wait 2 years from date of discharge to buy a home under an FHA loan (in a chapter 7) or you have to show at least 1 year of consistent chapter 13 plan payments before you can get a mortgage. However, if your spouse is trying to buy a home on their own, then your bankruptcy does not affect their qualification at all (unless they’re trying to put you on the credit application).

Court — You’re the only one who goes to court. You filed bankruptcy, not your spouse.

Collections — Just because you’ve filed bankruptcy doesn’t mean that your spouse is off the hook for joint debts. If his or her name is on the debt, then those creditors will eventually sue your spouse. Your bankruptcy didn’t wipe out the debt for your spouse.

Assets — This is a big one, and it can definitely affect your spouse.

House or car — If you own a home or car together with too much equity, there is a chance that a bk trustee will want to sell off that asset and pay creditors, even if your spouse shares the title with you.

Transfer of assets — If you have transferred assets to your spouse to “hide” them from the bk trustee, the bk trustee can avoid that transfer and put them back in your name.

Bank accounts — There’s a pretty fair argument that your spouse’s bank accounts may be joint marital assets, and the bk trustee will want to look into those, and maybe even take them.

Tax refunds — The bk trustee can even take your joint tax returns, even if your spouse didn’t file. There are complicated formulas on how much the trustee can take, but it can happen.

Retirement — Retirement accounts (like 401ks and IRAs) are generally safe in bankruptcy. Your spouse’s retirement will not be touched unless you’ve done something really funky (like transferring cash to your spouse before filing bk, and then he puts it in his 401k to try to protect it).

Inheritance — Your spouse is probably safe. If her parent’s die and leave her the home, that home is only in your spouse’s name, and it will not be affected by your bk. But this one is pretty fact specific.

Should I surrender my financed car before or after I file bankruptcy?


I have a current client who is getting ready to file. He has 2 financed vehicles: a 20 year old BMW and an 8 year old Toyota Tacoma. One of them is a lemon and has required transmission repair 3 times in the past year. The lemon is currently taking up one of his 2 assigned spots at his apartment, and he wants it gone now. However, we won’t be filing bankruptcy for another week or so.

What surprised me about the scenario is that his Toyota is the lemon. Who would’ve thought that the boring, dependable Toyota truck would be the problem here? That BMW probably looks fantastic, but when they start to break down, they really start to break down.

He wants to surrender the truck now, file bankruptcy in a week, and then list that loan in his bankruptcy. Bankruptcy will wipe out his liability on the repo and eventual sale of the truck. Unfortunately, his timing is off.

If he surrenders first and then goes bk, his credit report will show a repossession and a bankruptcy. That repo will stain his credit for 7 years, in addition to the bankruptcy sitting on there for up to 10 years. This gives him 2 black marks on his credit.

If he files bankruptcy first, and surrenders the truck the next day, the creditor CANNOT list the vehicle as a repossession. By filing bk and then surrendering the truck, he only gets the one negative hit on his credit (instead of 2).

It’s a little obnoxious having that truck sitting there for another week, but it’s definitely worth it. Your credit is a lot like a reputation; it takes years to build it up and only a few minutes to ruin it. You can recover from bankruptcy and repossession eventually, but you’ll recover more quickly if you try not to make your credit that much worse.

How fast can you file a bankruptcy case to stop a garnishment?

Pretty darn fast.

Honestly, I can prepare and file an emergency case the same day you call. But, and this is a big BUT, there are some things you need to do first.

A full bankruptcy petition is a huge legal document. It is usually 65-85 pages long, not counting the copies of 6 months of your paystubs and your last 2 years of tax returns. Thankfully, you don’t have to file a full petition to stop a garnishment. You can file a skeleton, or skeletal petition, which is literally a bare-bones petition.

What a skeletal petition needs:

  1. your name/social/address
  2. your online bk class certificate (this takes you 1 hour to complete)
  3. a list of creditors.
  4. payment to your attorney BEFORE you file.

Why do attorneys hate skeletons?

I know, it sounds easy, but there’s a lot that goes into it. Bankruptcy attorneys hate filing skeletal petitions. The reason why is simple: when you’re taking emergency measures and short cuts, you can really screw up a case. Your bankruptcy attorney has to do his “due diligence” on your case, meaning that he has put the time and effort into reviewing your assets to make sure that you don’t have something that you’ll lose in bankruptcy. Examples include too much equity in your home or car, or a huge tax refund that you haven’t received yet, or maybe even an inheritance.

For instance, I had a client once who had the rights to a small portion of the royalties from a James Taylor song. (I think of this case every time I hear “Fire and Rain” on the radio. His portion of royalties amounted to guaranteed income of around $300 a month. If I had filed a chapter 7, the bankruptcy trustee would have sold that right and used the money to pay off creditors. Instead, we filed a chapter 13 and used that monthly income to make a very modest payment to creditors over 5 years. If I had filed a skeleton without all of the facts, my client would have lost the right to receive $300ish a month for the rest of his life. That’s a big deal.

Why do skeletons work?

In many bankruptcy cases, my clients don’t have a proverbial “pot to piss in.” In reality, they probably do own at least one pot, but their assets are minimal or are protected by our state exemptions. If I can carefully review their assets in detail before we file, there’s not much room for error. It helps that I’m old and have done this thousands of times.

Just remember that your attorney is going to want to get paid before he does the work. He will also have to drop everything else he’s doing to prepare the petition. It’s a hassle, for you, for him, and for everyone involved. But, it can be done.

Here is a video I made on filing a skeletal petition (and yes, I know my face is funny. The left side doesn’t work, so get over it).

And here’s an earlier blog post on the same issue:

Is the bankruptcy trustee going to go through my Venmo, CashApp, and Paypal accounts after I file?

Oh yes he is! And even worse, the bankruptcy trustee can take any money you have in hand or on deposit on the day we file.

On the day we file bankruptcy, you don’t want to have much in the way of liquid assets (like cash or money on deposit on a bank account). In theory, the trustee can take the money you had on the day you filed and use it to pay creditors. This means Venmo as well!

For instance, let’s say you file a chapter 7 bankruptcy today and have $1,500 in your bank account on the date of filing. Tomorrow, you spend that $1,500 on your monthly rent. One month later, when you meet with the bk trustee, he will ask you to turn over that $1,500 so that he can use it to split between your creditors. When you try to explain that you spent the money on rent after filing, he won’t care. You had it on the day of filing, and he wants it now.

On the day you file bankruptcy, your bankruptcy estate is created. Everything you own on that day is part of your estate. Basically, the bankruptcy paperwork takes a snapshot of your assets for that day. (If you receive your paycheck the next day, that’s okay. You didn’t have those funds on the day you filed). The trustee goes through your estate, takes things that can’t be protected (like the $1,500) and uses them to pay creditors.

On the day you filed, you had the money, and he wants it. It wasn’t your money to spend. It was (and is) his. If you cannot turn over those funds, the trustee can make your case fairly awful. In extreme circumstances, he can even throw out your case and deny you a discharge of your debts.

One month after we file, the bk trustee will ask for a copy of your bank statements going back anywhere from 1-3 months before you filed. This shows all of your transactions and payments. This shows clearly when you paid your mom back or when you transferred money to your Venmo account to hide it from the trustee.

Unfortunately, the trustee has been doing this much longer than you, and he has seen almost every trick people use to hide money. He will ask for transaction reports or statements from not only your bank accounts, but your quasi-financial accounts like Venmo, Cashapp, Paypal, and any others that you can think of. If you had money in those accounts (or strange transactions), it can cause a world of hurt for you and your case.

The safest way to handle it is to disclose everything honestly. If you have a little extra money right before filing bankruptcy (which is rare), go build up your food storage. It’s hard to punish someone for stocking up their food storage to weather a storm.

What happens if I do not reaffirm my home mortgage or my car loan? And why do they say I can make “voluntary payments” if I want to?

Short answer: you can generally keep the car or home, so long as you keep paying on the loan

Long answer: It’s complicated.

When you file bankruptcy, it generally discharges, or wipes out, almost all of your debt. However, you can pick and choose which secured debts you’d like to keep. For example, if you want to keep your home mortgage or your car loan, you check a box that says, “reaffirm.” This lets the bank know that you want to sign an agreement AFTER filing the bankruptcy, where you promise to keep making the same payments, balance, schedule, etc.

I’ve written a few blog topics on reaffirmation generally, and those links are listed below.

If you reaffirm the debt, it keeps reporting on your credit, and you have to keep paying on it. If you fall behind an face a repossession or a foreclosure after signing the reaffirmation agreement, that debt survives the bk, and they can sue you for the difference.

(Yes, you can change your mind and cancel or rescind a reaffirmation agreement, in some situations).

But what happens if you don’t reaffirm the debt? Normally, you surrender the collateral (like the home or car). In some situations, you can do a “ride through,” where you ride the car through bankruptcy and keep making payments. They won’t report it on your credit, but you can keep it so long as you stay current.

Some banks won’t let you do a ride-through, and they will still repossess if you fail to reaffirm.

As for the home, so long as you keep paying on it, it’s yours.

As for “voluntary payments,” well, they have to say that. When the debt is discharged in bankruptcy, they cannot legally collect on it. But if you call customer service and voluntarily make a payment on the loan, they are glad to accept your money. That’s why they keep saying, “voluntary.” No one is twisting your arm and trying to collect that payment.

Here are a few blog articles on reaffirmation, cars, homes, and not reaffirming: