Are there any tools possible to leverage the bankruptcy system?

I think I was around 26 when I had amassed north of $50k in available credit spread across all of my credit cards (including store cards and whatnot). For the sake of this game, let’s pretend I was a real go-getter and decided to start building credit faster than I actually did, and that I built more of it – say, 100 grand by the time I’m 24.

If I max out all of my credit cards and convert the credit to cash through some legal means (say, buying and reselling goods), are there any financial instruments I can use to put that money out of the reach of a bankruptcy court? How long would it be before I could touch it again?

Alternate theory – if I buy collectible items and lock them away in an anonymous storage container, could a court force me to reveal the location?

Seems to me that an enterprising young person with lackluster morals could get a jumpstart.

Buy a big house in Texas.

Florida also has protection for the family home. That’s why guys like OJ lived there. Even if your house was worth millions, the bankruptcy court or other debtors could not force you to sell it.

If you fail to declare all your possessions in bankruptcy court, or lie, that’s a crime. Google “Peter Pocklington” who used to own Wayne Gretzky, and recently used outright crookery to try to stay rich. He’s been fighting a rearguard actioon against having his goods seized, tried every trick including the excuse it’s in his wife’s name.

I think it would be considered money laundering (and thus illegal anyways) but what if you were to sell all your goods to someone for a small percentage of what they were worth and then after the bankruptcy proceedings are over, you could buy them back?

So for example, you ran up all your credit cards buying tangible goods (as opposed to services) to $100,000. Then, when you realized how short you were on cash, you sold them all to a friend for $100 or $1000. When this didn’t work you declared bankruptcy (all planned of course). Later, you buy all your goods back from him for the same amount and start liquidating them. In the mean time you could let the creditors seize the money you made selling the goods.

But like I said, I’d imagine that this would be considered money laundering, especially if they could prove that you intended to defraud the credit card companies.

ETA, there’s a chance the credit card companies would actually let you settle for 10 cents on the dollar, maybe you wouldn’t have to go into bankruptcy after all.

That would be considered a fraudulent transfer, and would be subject to avoidance by your bankruptcy Trustee. The Trustee can go back at least two years (up to four years, here in Indiana) and file a lawsuit for the turnover of the goods (which can then be liquidated by the Trustee and used to pay creditors) or for the cash difference in what they were worth and what they were purchased for - 11 USC Sec. 548

Cash is the worst thing you want in a bankruptcy proceeding. Each Debtor is subject to exemptions - either Federal or state - and cash and intangible property generally has the lowest cutoff. In Indiana, for example, you are allowed to keep $350 in intangible property, which includes cash, bank funds, stock, etc.

In addition, depending on the timing of everything, the creditors could file a Complaint against you for a bad faith filing, and make their debts non-dischargable - meaning, you’d still have to pay them back. Which would be fair, I suppose, since it would be a a bad faith filing.

One thing to remember, whatever you do to leverage the bankruptcy system, the banks, various lenders and government (especially if they are working together) have much bigger levers.
The bankruptcy system just isn’t designed to use as an investment tool.

Canadian law must be quirkier than I thought.

Actually, if you have enough money for an excellent attorney, you can protect much of your property and discharge a ton of debts. It will never be 100% - you may have to buyout some real estate equity or end up settling with a secured creditor, but Chapter 7 and 11 can be excellent ways to protect your assets while dumping lots of debts.

You have to get a good attorney, because much of the success hinges on what goes on before the bankruptcy. Lots of reporting requirements hinge on time periods - for example, you only have to report transfers within the prior two years. Other potential hot spots have other time frames. So, if you get to a lawyer soon enough, you can move everything around and wait it out.

Generally, big shots know they’re in trouble before the collection lawsuit is filed, and they go see a lawyer. The lawyer identifies the trouble spots, and starts estate planning, at the same time he’s dealing with the collection lawsuits. It can be easy to drag out a big case for two years while you wait for the time to expire.

It’s amazing how much time a lawyer can buy in a simple foreclosure. In our district, you can file a response to a foreclosure lawsuit on the 30th day and request an extra 30 days. Then, there’s a small conference with the Court, you notify of the intention to file a bankruptcy. You do nothing more at that point, then the lender files a Motion for Summary Judgment, which they win. That process takes about another 90 days. Then they have to move to sell and get a date for Sheriff’s Sale. Dates are only once a month, so that takes about another 60 days minimum to a sale date. Then you file the bankruptcy the day before the sale, stop the sale, and the lender has to file another Motion with the bankruptcy court. That takes another 45 days, on average.

So, you can take an ordinary client, make it so they live rent free for 9 months to a year, in which they have to spend the cash they’re saving since you can’t have a lump of cash sitting in the bank. They save a security deposit and the first month’s rent, move the day after filing, and then get rid of all their other debt.

You can’t imagine the crazy attorney work for a high-end Debtor.

The story goes that one of the first things Alan Eagleson and the NHL Player Association fought for when they were formed in the late 60’s was the right for a player to see a copy of their contract. There are probably a few players still kicking around who have the pre-WHA pensions of about $10,000 a year for playing professional sports all their life. Gretzky was one the lucky ones.

Anyway, (IANAL) there’s a distinction between “gaming the system” so that you don’t hav to pay back everything you owe, versus trying to bury a bit of the treasure and enjoy it after your debts are cleared. The latter is illegal (except for items the house exception, etc.) When you declare bankruptcy, I understand you must declare all your assets and liabilities. Failure to declare any assets is illegal (fraud? perjury?) and a lawyer who suspects this is the case may refuse to carry on with you. (If it can be shown that they should have known and were in on it or willfully blind, I suspect disbarment is in the cards).

However, milking a sinking ship (to mix metaphors) with stalling tactics and other tricks is not illegal.

A few years back they changed the laws to make it difficult to go bankrupt. The rules were changed at the instigation of credit card companies and banks who claimed Americans were in fact gaiming the system and exploiting these bankruptcy loopholes. Live the good life, run up your debts, declare bankruptcy, rinse and repeat. In fact, the new laws, from what I read, have not had a significant effect on the rate of bankruptcy declarations because the majority were not deliberate bankruptcy, or even poor money management - rather they were people hitting unfortunate circumstances like unemployment or medical bills that left them unable to meet their payments.

OK, so it looks like a house is the way to go. Let’s say I take friedo’s advice and move to Texas to buy a $100,000 house with all of my converted credit card debt. I don’t have a mortgage, so there’s nothing for any bank to seize. Because it’s my primary residence, they can’t force me to sell. I have no other assets. Heck, I can even stay employed through all of this, as long as I don’t accumulate any wealth.

Next question is – how long after the bankruptcy proceedings do I have to wait before selling my house and leaving Texas $100,000 richer.

I am pretty sure (though not certain), that they would simply slap a lien on that house that will last forever. I think you are stuck in that house.

You’d have to do it very carefully, and very slowly. If you spent 5 years building your credit limit to $100K, and then took cash advances for the limit and went into bankruptcy right away, you’d have an adversary filed for fraud almost immediately. Credit card companies look for that stuff all the time.

If they got a judgment, you’d have the house equity, but you’d still have to pay for it.

I’d say you’d probable have to make the minimum payments for a year at least before thinking of filing. And with a house free and clear of liens, the Trustee would be poking around the edges to see if he could get at it despite the exemption of the equity. If questions arose about how you paid for it, you’d have to answer, and it would be easy for the Trustee to tip off the credit card companies.

The bankruptcy documents you sign are signed under penalty of perjury, and lying could get you prosecuted for bankruptcy fraud, which can include penalties all the way up to jail time. The USDOJ has an entire division devoted to investigating and prosecuting bankruptcy fraud.

The majority of practical changes included in the recent bankruptcy code changes really amount to a means test for a Chapter 7 bankruptcy. You have a worksheet ti fill out and file, which gives you certain allowable amounts for living, and that’s compared to your income. If it’s too high, you’re forced into a 13, which allows for repayment of a percentage of your debts using that excess income.

But, in practice, it changed very little.

Just wanted to add that the USDOJ United States Trustee program would be notified as well, and then you would be looking at a potential criminal fraud proceeding in addition to the non-dischargability action from the credit card company.

Bankruptcy fraud is nothing to screw around with They got the holes sewed up a long time ago.

IANAL but I believe there’s a key factor that declaring bankruptcy is not a right. You’re asking the judge to allow you to declare bankruptcy. Granted, in practice permission to declare bankruptcy is virtually always given. But the judge has the power to deny you and I believe there have been a few cases where it’s happened when the petitioner had blatantly set up his finances for the purposes of profiting by bankruptcy.

You have the right idea - what a Debtor really wants is the Discharge, which is an order of the court saying you don’t have to pay the dischargable debts you have as of the day you file. Without objections, it’s entered 90 days after you file, but it can be denied or revoked because of fraud and other things, like not cooperating with the Trustee or not turning over non-exempt assets.

There’s a huge sign in the bankruptcy hearing room I’m in every day letting everyone know that “The FBI Investigates Bankruptcy Crimes”, so you might also be looking at an FBI investigation on top of everything else.

Also, if you play fast and loose with the rules, it’s possible for the trustee to seize your property, sell it at auction, pay himself an administration fee, pay off some of your debts… and you might STILL be denied a discharge, plus go to jail for fraud or perjury.

Michael Scott did it on “The Office.”

One of the people in front of me at bankruptcy court was a Vietnamese woman who had run a series of nail salons.

She was listing $32k in assets - her business tools, but debts of $90k. She was filing under one business name, but had dropped that one, formed another one and was still operating in the same location, just under a different name. She was also claiming that a significant chunk of her debts were owed to herself, which is really odd. She spoke very good English, but gave inconsistent answers as to the names of her business partners and her debtors.

Judge looked it over and said NO. Told her attorney to go back and redo the paperwork to provide all of the details and get some consistent answers.

The person after her and just before me failed to list her car, which was over the exemption value. She too was denied and sent back to refile.

Like others have said, concealing assets is a crime. The judges are fairly experienced and seemed fairly good at sussing out what is not on the paperwork.