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BankruptcyFeaturesLJN NewslettersThe Bankruptcy Strategist

Hiding Assets in California

By David Goodrich

The vicissitudes of consumer fortune appear to have led to the “asset protection” industry. A cursory Internet search of the phrase, “asset protection” produces pages of advice for “protecting” assets from creditors and, ostensibly, from bankruptcy trustees. Often, asset protection advice is bereft of any discussion of California exemption statutes — which often provide the most efficient and safest asset protection — and fails to admonish the unwary of powerful creditor rights. Most asset protection discussion forums ignore the consequences of a Chapter 7 bankruptcy filing should asset protection counter-measures be deployed in response to a creditor's asset-hungry appetite. Ironically, some asset protection tools leave assets completely naked, and strip them of any protection afforded under exemption statutes.

As a preliminary matter, it may be useful to understand a common pitfall of most asset protection tools used in California. If a transfer of property of a debtor is actually or constructively fraudulent, it is recoverable by a bankruptcy trustee if made within two years of a bankruptcy filing pursuant to 11 U.S.C. § 548, or within four years of a bankruptcy filing under California Civil Code (Cal. Civ. Code) §§ 3439.04 or 3439.05. If, however, the debtor owes the IRS back taxes, the reach-back period for a bankruptcy trustee could be 10 years depending on the length of delinquency to the IRS. Mukamal v. Citibank NA (In re Kipnis), 16-1045 (Bankr. S.D. Fla. Aug. 31, 2016)

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