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Maverick, Attorney
Category: Bankruptcy Law
Satisfied Customers: 6422
Experience:  20 years of professional experience
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Facts I take home $30,000yr now, was $90,000. My house &

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Facts: I take home $30,000yr now, was $90,000. My house & car payments alone are $32,000yr. I absorbed loans & credit card debts from divorce, payments come to $45,000yr. Financial advisor says YES to BK.

I cashed out my 401k, $76,000. Paid my employer back for a $30,000 loan, put the rest $46,000 into my new business, Go West LLC bank account, for future side jobs, home investments, to subsidize my income. $16,000 of that I need to save to pay taxes. So $30,000 is what i have left to try and make some extra $$.
1. Can this $30,000 be taken, if I file BK? If so, What can I do with the $ so it isnt taken from me?
2. If it's invested in a house remodel, so bank account shows $5000, can that still be a problem?
3. Financial advisor also stated since the divorce decree states theres a family Diamond ring, given back to me, that the ring might be taked also??
4. Ex is court ordered to pay 1/2 credit card debts, she hasnt pd. How does BK effect that? they're in both our names?


1. The link above will tell you which of your assets you can claim as exempt from creditors in bankruptcy.


2. Anything that you cannot exempt is subject to creditor attachment if it is transfered within 2 years of the filing of the BK. In otherwords the trustee or a creditor could challenge any transaction as a fraudulent conveyance or transfer and ask the court to have it reversed.


3. If you would have waited to cash out your 401 k until after you filed BK, the whole amount would have been exempt.


4. The 30k that you have transfered to the LLC could thus be challenged by the creditors. Converting it to an exempt asset like a homestead is also subject to challenge if done within two years of filing.


5. Depending on the value of the family diamond ring, it may be exempt...see the link above.


6. If you file BK your responsiblity for the CC debts will be wiped out but the credit card company can still go after your ex.

Customer: replied 7 years ago.

OK, This is a Great start in helping. How I understand it is, If i did put the $30,000 into an investment property, it would be one of 3 partners investing in. To make the total investment $90,000, which enables us to BUY the home, then fix it up for resale. ( about a 4-6 month turn over) 20% of any profit goes to the other 2 investors, and I would take whats left in profit.

1. Would this count as the "Partners rights" in the unlimited exempt section attached? Since the $30,000 is nessary for the other investors to complete the transaction?


2. The LLC I have only has me listed as the only member. The company is set up through Nevada, and is registered as a Foreign company in Arizona. I am listed as the only member. What if I added another member to the company. Then it would be Her money/intrests in the company also right? Is that how it reads in stateing "partners rights in partnership property?

Let's look at 2 first: LLC members are not considered partners as the legal term is used in the exemption list. A partner is a partner in a legal partnership entity which is different than an LLC or a corporation.


The real problem is not that you put the money in a partnership or that you use it as improvements to your homestead or that you convert the cash to some other form of exempt property, the problem is when you make the such a transfer or conversion with in two years of filing BK, it is subject to being challenged or reversed.


You could go forward with the transfer and argue in good faith, if it is challenged that the money came from your 401k and thus it should be exempt, but that is at best a 50-50 win.


A better solution would be to return the money to your 401k if possible and file BK and then cash out the 401k after the BK is discharged. This transaction has a better chance of success.

Customer: replied 7 years ago.

Wouldnt I have to pay taxes twice, on the 401k $?

First from cash out done last month, then again when I cash out the new 401k investment down the road?


Also, since my new business, isnt even listed in my name (its under the company name) and in a small seperate private bank, as a Business account, why should it even come up as a personal bank account, for my personal BK?

yes, you are right about the tax consequences.


let's see if we can't find you a better solution:


One option is to consider a chapter 13 reorganization plan.


Another option is along the lines of using your LLC to protect the money. Now, when you file BK, any interest you hold in the LLC as a member becomes the property of the bankruptcy estate. So, even though the creditors do not have a direct right to the money, they have a right to the membership interest so to speak. This is done through a charging order issued by the BK court. If you keep it a single member LLC the trustee will have a right not only to your economic aspect of the membership but will also have the right to control the LLC.


So the first thing to do is to get another member involved. Then the charging order only applies to the economic interest and if the LLC never makes a distribution, then the creditor's charging order is worthless while you can still get paid as an employee of the LLC.






Customer: replied 7 years ago.

I like the last option. Need more explaning! What do you mean by distribution and economic intrests... Isnt getting paid as an employee a distribution?


We DONT forsee this money doing anything else but being contiually re-invested in properties. AND used to pay business Liabilities. So is putting ourselves down as "payroll" then its ok?


Sorry, I am a structural engineer and finance is NOT my forte..


What are the benifits to Chapter 13? It still damages your credit doesnt it?



Customer: replied 7 years ago.
Also, finance advisor stated my Ex wife could come after me, if i file BK, for the credit card debtors calling her to pay... Is that true?

A distribution is when you get paid part of the profits from the business because you own a membership interest.  If your LLC never decides to pay its members a profit, then even if the creditors have a charging order on your membership interest they will never collect any money.  In the mean time you can be an employee of the LLC and get paid a salary.


Getting paid as an employee is not the same as a distribution.


Chapter 13 Bankruptcy will get reported to your credit file, yes.


The benefits of a Chapter 13 are that you get to keep your property but you come up with a repayment plan to payoff all secured debts and get to negotiate the unsecured debt down to pennies on the dollar based on you ability to pay.  In other words, under the Chapter 13, it is unlikely that the creditors will seek a charging interest against your membership interest in the LLC.






See answer just above also.


As to your ex-wife, yif your divorce decree requires you to pay 1/2 of the credit card bills, then that is a divorce settlement agreement and if your wife pays 100% of the debt, then she can seek 1/2 from you and it is not typically discharged. However, if you both file BK, then neither of you will have to pay. If she only pays her 1/2, the creditors can still ruin her credit since she is responsible for the full amount just like you and so if she decides to pay all of it, she can seek contribution for the other half from you. In other words, your debts are discharged against the credit card co, but not against a divorce settlement or order wiht your ex.

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