Bankruptcy Cash Outs
Using bankruptcy cash out loans before filing
The federal code provides specific limitations on transfers of property during the one year before filing. Granting a security interest in exchange for a home equity loan is considered a transfer of property. In addition, the disposition of loan proceeds will be verified ( should be verified) by the trustee. Although bankruptcy cash outs are common, and legal, care should be taken not to trip one of the many federal code prohibitions against fraudulent transfers.
All transfers of property for the purpose of hiding assets are strictly prohibited. All transfers of real estate must be reported to the court. Expect inquires regarding the source of funds, and any transfers of funds from your estate. In practice, many debtors use home equity loans as a first defense against filing. Yet also be aware that home equity loans often implicitly include the disadvantage of converting exempt property into non-exempt cash. Many exemption statutes however extend the homestead exemption for a period of months to allow repurchase of a new home.
Should you have further questions, contact a qualified local attorney.