Bankruptcy exemptions (703, 704, etc) and protecting from lawsuits

[jeromedawg]

Hi all,

Asking on behalf of my in-laws, as my wife is worried and concerned about them potentially getting sued and/or having to file for bankruptcy (as a result of a lawsuit, etc).
I'm not going to go into fine details here but just wanted to know what they would be protected from and/or how to further protect themselves.

They are both in their late 70s and live in California. They recently sold their home and downsized to a smaller unit near us. They do not have a 401k or IRA but they hold cash assets in bank accounts.

If they were to get sued, my understanding is that things like their primary residence (even a stock cooperative), vehicle, etc would be protected. So the primary concern is with their cash assets and how much liability there is with those. I wanted to know if this concern is valid and, if so, what the best way would be as far as protecting and sheltering the cash assets. I realize we should probably look for a bankruptcy lawyer but in the meantime I wanted to inquire here in case anyone has experience or secondhand experience.

TIA

[cool7hand]

If they were to get sued, my understanding is that things like their primary residence (even a stock cooperative), vehicle, etc would be protected.

This is wrong. With most judgments, you can attach almost any real or personal property. Read my response here and get an umbrella policy: https://forum.mrmoneymustache.com/welcome-to-the-forum/umbrella-insurance-119082/.

[YttriumNitrate]

If they were to get sued, my understanding is that things like their primary residence (even a stock cooperative), vehicle, etc would be protected.

This is wrong. With most judgments, you can attach almost any real or personal property. Read my response here and get an umbrella policy: https://forum.mrmoneymustache.com/welcome-to-the-forum/umbrella-insurance-119082/.

Doesn't it depend on the state law? For example, in California there is a homestead exhibition that can shield a house from being seized. https://journal.firsttuesday.us/californias-homestead-exemption-falls-short-of-full-protection-for-homeowners/82073/

[Boll weevil]

IANAL and it depends on state law, but my understanding is:
- primary residence has homestead exemption described earlier. Sounds like California caps it. Some states don’t limit it, while other states have no exception at all.
- 401ks have some protections. Not sure about the various types of IRAs.
- Social security income is protected provided it’s the only money in that account. If it’s commingled with other funds, it’s not supposed to be taken, but there’s nothing that prevents it.

There are ways to hide assets from creditors. However,
- the ones I know about are to protect from external searches and make it look like there are no assets to attach/go after. They still have to be identified to the court if bankruptcy is filed for. Failure to disclose can result in bad things (disallowance of bankruptcy protection, fines, and/or jail). 
- I believe the bankruptcy court has the ability to look back some time (2 years?) and undo transactions that have the effect of transferring or shielding assets or that result in some creditors being paid off completely while others receive nothing.

So if this is sort of an abstract fear and they want to take that path, they probably should start ASAP. However, if they’ve already incurred the debt, it’s probably too late because anything they do can be undone.

[jeromedawg]

If they were to get sued, my understanding is that things like their primary residence (even a stock cooperative), vehicle, etc would be protected.

This is wrong. With most judgments, you can attach almost any real or personal property. Read my response here and get an umbrella policy: https://forum.mrmoneymustache.com/welcome-to-the-forum/umbrella-insurance-119082/.

If they were to get sued, my understanding is that things like their primary residence (even a stock cooperative), vehicle, etc would be protected.

This is wrong. With most judgments, you can attach almost any real or personal property. Read my response here and get an umbrella policy: https://forum.mrmoneymustache.com/welcome-to-the-forum/umbrella-insurance-119082/.

Doesn't it depend on the state law? For example, in California there is a homestead exhibition that can shield a house from being seized. https://journal.firsttuesday.us/californias-homestead-exemption-falls-short-of-full-protection-for-homeowners/82073/

IANAL and it depends on state law, but my understanding is:
- primary residence has homestead exemption described earlier. Sounds like California caps it. Some states don’t limit it, while other states have no exception at all.
- 401ks have some protections. Not sure about the various types of IRAs.
- Social security income is protected provided it’s the only money in that account. If it’s commingled with other funds, it’s not supposed to be taken, but there’s nothing that prevents it.

There are ways to hide assets from creditors. However,
- the ones I know about are to protect from external searches and make it look like there are no assets to attach/go after. They still have to be identified to the court if bankruptcy is filed for. Failure to disclose can result in bad things (disallowance of bankruptcy protection, fines, and/or jail). 
- I believe the bankruptcy court has the ability to look back some time (2 years?) and undo transactions that have the effect of transferring or shielding assets or that result in some creditors being paid off completely while others receive nothing.

So if this is sort of an abstract fear and they want to take that path, they probably should start ASAP. However, if they’ve already incurred the debt, it’s probably too late because anything they do can be undone.

I think there is a homestead exemption in CA - the family attorney says it's $600k (for jointly filing couples). It's difficult finding the exact details though for limits, etc for CA at least - we've talked to a couple different lawyers, a paralegal, and insurance and none of them seem to have a definite grasp on the limits outside of the family attorney who says $600k for homestead.

In the case that there's no lawsuit (yet), could my in-laws, in theory, gift us whatever so that they can effectively 'relinquish' it from their names and have it no longer considered an asset belonging to them? Or, could they get umbrella insurance *today* and be protected from anything that arises in the near-future (again, in the case that there's no lawsuit yet... there are insurance claims, however)

[TMB]

In the case that there's no lawsuit (yet), could my in-laws, in theory, gift us whatever so that they can effectively 'relinquish' it from their names and have it no longer considered an asset belonging to them? Or, could they get umbrella insurance *today* and be protected from anything that arises in the near-future (again, in the case that there's no lawsuit yet... there are insurance claims, however)

"Gifting" things without actually giving them up just opens them up to fraudulent transfer claims.  Even with actual gifts, there are loopback periods.