If you are facing a civil lawsuit, there are steps you can take to protect your assets. This includes creating trusts, forming LLCs, and transferring property to relatives. You should also consider moving assets offshore and out of the reach of creditors.
If you are sued but do not have any assets, it does not mean your creditors cannot sue you. They can still seek to recover from a judgment from any future assets that become available to you. Because of this, it is important to take measures to protect your assets even if the lawsuit is frivolous.
The best protection against a civil lawsuit is an asset protection trust (APT). A properly appointed APT has legal terms that will help reduce or eliminate your liability if you are sued or threatened with a lawsuit. An APT will also prevent creditors from reaching your assets directly. This can be very effective in reducing creditor pressures and preventing collection lawsuits.
What Assets Can be Taken in a Lawsuit
There are several ways to protect your personal assets, including forming a limited liability company or creating an asset protection trust. Limited liability companies can help shield your personal assets from business debts and liabilities. Asset protection trusts can also be used to protect your assets from creditors.
According to the NRF, theft, fraud, and retail “shrink” totaled $61.7 billion in 2019, up from $50.6 billion in 2018. There are certain assets that can be seized or attached by a creditor:
- Checking and savings accounts
- Debtor’s accounts receivable (money owed to you)
- Stocks, bonds, mutual funds, U.S. savings bonds, money market instruments and certificates of deposit in personal names
- Personal injury and wrongful death awards unless protected by an APT or a similar legal entity
Other properties such as land, buildings and cars are “exempt” in most states and cannot be taken by creditors or judgment creditors. Also exempt is Social Security income. Supplemental Security Income and disability payments may also not be attached by creditors under federal law.
6 Ways to Protect Your Home From a Lawsuit
Your home is one of your most valuable assets. It serves as a place to live and store some of your most prized possessions; however, it can also attract the attention of creditors or judgment creditors.
Here are six steps you can take to protect your home from a civil lawsuit:
Redemption
Under certain circumstances, you may be able to “redeem” your home by paying off any liens that are placed on the property by a judgment creditor. This will allow you to regain title to the property while keeping any equity in the home. Once this is done, you can refinance and pay off any outstanding judgments with cash-out refinancing or another type of loan.
Property Division
If you are facing a divorce case, the court may order that your home can be divided between you and your spouse. Although a judge will not order a complete sale of your home, he or she can order the sale of anyone’s spouse’s share in the house.
This means that one spouse will receive a portion of the equity in the home and may be able to sell his or her portion to pay off any debts they owe. Keep in mind, however, that this option is only available to married couples and not single individuals.
Mortgage Forbearance
If you are not able to make your mortgage payments, a mortgage holder may contact you and try to negotiate an equitable forbearance. An equitable forbearance is one that allows you to keep the home but forgo making payments for a certain period of time.
The length of time is up to the lender, but the borrower should be aware that at some point the lender will take steps to foreclose on the home. It’s important to be proactive in this situation and contact your lender immediately if you are having problems making payments on your home loan.
Foreclosure Protection
If there is any chance that foreclosure proceedings could be taken against your home, it’s important that you stay current with your mortgage payments in order to prevent foreclosure. Remember that a foreclosure will have negative effects on your credit history, which may prevent you from borrowing money in the future.
If you are having difficulty making your mortgage payments, it is important to speak with a lawyer first before contacting your lender and asking for mortgage forbearance.
Equitable Relief
If a creditor or judgment creditor has placed a lien on your home, it’s possible that the court would order an equitable lien release. An equitable lien release is a type of court order that removes liens placed against homestead properties either through judicial decree or through agreement of the parties.
This usually happens in the case of a divorce or when someone who had an equitable interest in your home dies. Once the lien has been released, you can refinance your home, sell it and use the money to pay off any debts you owe.
Home Equity Loans
If you use your home for collateral for any type of loan, such as a mortgage or second mortgage, there is a possibility that your creditor would foreclose on your homestead and take possession of it.
However, in most states, it is possible to seek relief from this type of situation if you can prove that paying off the loan will leave you and your family with no place to live. In order to be approved for this type of relief, you will have to show that you are unable to make your monthly mortgage payments, that losing the home will drastically change your life, and that it would be difficult or impossible for you to find a new place to live.
According to CoreLogic data, U.S. homeowners with mortgages (approximately 63% of all properties*) have seen their equity increase by more than $3.2 trillion since the fourth quarter of 2020, a 29.3% year over year increase.
When deciding between redeeming your home or filing bankruptcy, it’s important that you keep in mind the state laws regarding property rights. Under Texas law and many other state laws, a creditor has first claim to all assets owned by a debtor.
This means that if you have an asset such as a car or some type of business equipment, the creditor has first priority over the asset and can repossess it immediately after a judgment is issued.
The Different Types of Asset Protection
If you’re looking to protect your assets, you’ll want to consider getting unlimited protection with minimum legal liability coverage. If you have commercial liability insurance, your umbrella coverage pays benefits if both you and the commercial liability policy are named in a lawsuit. If you have personal liability insurance, your umbrella coverage pays benefits if you are named in a lawsuit.
Life insurance policies can provide this type of coverage, as well as mortgage payments.
There are various types of asset protection, which vary in the level of protection they provide. The most common methods for protecting assets include:
- Living Trusts
- Irrevocable Trusts
- Pour-Over Will
- Irrevocable Life Insurance Trust (ILIT)
With this type of trust, you name beneficiaries who receive the cash value when you die. Once the proceeds are received, they can be used to pay off any debts you owe or they can be held in trust until your children reach a certain age. The advantage of this type of trust is that creditors cannot attach the cash value until your death and even then it is only payable to your beneficiaries.
Why You Need Asset Protection
It is important to have asset protection if you are facing financial difficulties. There are numerous ways that you can protect your assets through a will or revocable trust. As long as you make necessary provisions for your loved ones, it is possible for them to protect a portion of your assets from creditors. However, these assets can also be protected by a bankruptcy filing.
A Will (also known as last will & testament) is a legal document written by an individual that specifies who gets what from his or her assets after death and how it will be distributed to them.
These decisions are made during one’s life and not when the event occurs. In addition, a will can order how all of the assets will be divided between the deceased’s family members and if he or she has children, it determines who will raise them.
Something to keep in mind is that some relationships are not covered under the laws. For example, if you leave an inheritance to your brother and sister jointly (as opposed to individually), they would share the inheritance 50/50. The same goes for anyone who has a romantic relationship with each other. This can be difficult because it is impossible to guarantee that this type of situation won’t arise.
How to Legally Protect Your Assets
There are multiple ways to legally protect your assets. If you have a family and would like to pass your assets down to them, then it’s possible for you to set up a trust or will in which you specify who gets what after your death.
There is no law that specifically says who gets what from the estate, but if there is a surviving spouse, he or she will get the largest portion of the estate. An heir can also be designated as a beneficiary of a trust.
You can name anyone you want, including children or grandchildren. The only limitation is if a beneficiary is married, then his or her spouse must also be included in the trust document.
A revocable trust is another type of asset protection. This trust can be set up by a single individual or by a married couple. If the trust is set up by an individual, then it can be amended at any time.
If the trust is set up by a married couple, then the trustee cannot amend it without the written permission of both spouses. In addition, if one spouse has the power to change the will/trust that was passed down to him or her, he or she can change it without the spouse’s consent.
Either way, you go about setting up an asset protection plan, keep in mind that all of your assets must be listed in the document (such as real estate).
The Best Ways to Protect Your Assets
Saving for a Rainy Day
The best way to protect your assets is to save for a rainy day. You can also set up an emergency fund to use for this purpose. Ideally, you will want to save as much money as possible so that you can use it if trouble arises.
For example, if you have been laid off from work and your debt load has increased, then it’s possible that your creditors might come after your property (such as your home) in order to satisfy their judgment.
By having a large financial cushion, it’s possible for you to pay them off and keep your property out of the hands of collectors. According to a Financial Conduct Authority survey from 2017, many millions of individuals would struggle to pay an unexpected £50 charge at the end of the month.
Real Estate
If you’re considering selling your home in a situation where there is a foreclosure, then it’s important that you do not rush into it. It’s always good to know more about the property than just its current value.
For example, if you are looking to sell your home for $300,000 and there is a home that is currently being sold for $350,000 and one that has been foreclosed on for $450,000 nearby. You may want to consider buying the more expensive home that is being sold rather than selling your current residence and moving into an inexpensive new house that could bring in less money.
According to the National Association of REALTORS®, 5.64 million existing houses were sold in 2020. According to the U.S. Census Bureau, 822,000 newly constructed residences were sold in 2020.
Automobiles
If you are struggling to keep up with payments on your car, then it’s possible that the vehicle could be repossessed. This will ultimately mean that your car will be taken away from you and sold to a third party.
Before making this decision, it’s important that you sit down with a debt management company in order to get an idea of how much money you’re actually spending each month on the car. The cost of gasoline is rising rapidly and if you have to travel further than usual for work or school, then it’s possible that you could be spending more for gas than usual.
This will ultimately increase the amount that you owe on the vehicle and lead to its demise when payment is not made on time. The average car payment for a new vehicle is $644 monthly (up 11.8%), while new lease payments average $531 (up 15.4%). Despite having the highest price increase (18.2%), used cars have the lowest average monthly payments ($488).
Consolidate Debts Before You File Bankruptcy
Debt consolidation can be an excellent way to reduce your monthly payments and help you get out of debt. When you’re struggling with massive credit card bills, it’s possible that your only solution is filing bankruptcy and get rid of the majority of them.
However, you may want to consider working with a debt management company in order to lower the amount that you owe. In addition, by contacting a credit counselling agency, it’s possible for them to work out a repayment plan with the creditors that is both affordable and sustainable for your income level.
However, this is not an option for everyone so be sure to look into all of your options before deciding which is best for you. Bankruptcy filings in the United States have gradually climbed over the last century, particularly between 1980 and 2005.
Avoiding Undesirable Situations
If you’re having trouble making ends meet, it’s possible that you might need to move back in with your parents or into a different situation. If this is the case, then it’s important that you make sure that you don’t end up in a place where you are having to live with your parents because of your financial situation. This can lead to resentment on the part of the latter and could ultimately lead to problems within their relationship.
When considering moving back home for financial reasons, keep in mind that this is not a permanent solution and an independent lifestyle is also possible.
Creating an Effective Asset Protection Plan
Your best asset protection plan will always be the one that is set up by a professional. If you are unable to find a professional that can help you, then your options will be limited. However, there are some things that a good estate planning attorney can do for you.
If your goal is to protect your assets and avoid losing them or having them taken by creditors, then you will want to consider the four main factors below:
The first factor is the amount of debt that you have for each creditor. In many cases, creditors will allow you to prioritize payments in order to alleviate their burden from other debts.
Last Updated on October 12, 2023 by Priyanshi Sharma
