Secured Assets: Debt
Negotiation
and Judgment Protection
One of your main objectives before trying to negotiate a loan modification is to
make yourself judgment-proof.
John McKindles
February 2010
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Before you to try to negotiate a debt resolution
with a creditor, consider the following.
Review Your Asset/Income and Debt Scenario
In debt collection, the key to
what you can do with your assets and income is whether any transfer or other
act, that would impact a creditor’s access to your assets/income, makes you
unable to pay your debts as they become due. If, with your current
assets/income, you are already unable to pay your debts as they become due
(i.e., you are insolvent), you actually have more flexibility and options
available to address your debt.
Exempt Assets
Notwithstanding the above, you can usually take
steps to convert non-exempt assets to exempt assets at any time. Exempt assets
are essentially those items of value that cannot be accessed by a creditor,
including a judgment creditor, without the express written consent of the
debtor.
Each state generally has its own exemptions, which
are generally greater and more encompassing than the federal exemptions.
Arizona’s exemptions are generally found under
Title 33 of the Arizona Revised Statutes. However, exemptions can also be
found under Titles 9, 15, 20, 23, 38, 41 and 46. Some additional exemptions can
be found in the federal statutes, such as for Social Security benefits, benefits
for government employees, veterans’ benefits, etc.
For example, the Arizona homestead exemption
generally insulates up to $150,000.00 equity in a debtor’s residence. Although
these days there are fewer homes with any equity, it may be advisable to use
some non-exempt assets (e.g., cash, personal property or securities) to apply
toward creating a greater exempt equity in your residence.
Judgment-Proof?
Another strategy in advance of negotiating a debt
resolution might be to borrow money (perhaps from a friend or relative) and
secure that loan with a lien against a non-exempt asset or an exempt asset with
excess equity. These steps are also called making yourself “judgment-proof” – an
enviable position to be in when negotiating a debt resolution.
Sales of non-exempt assets can also make you a less
attractive target for creditors and, if properly documented, can be done without
violating the statutes against fraudulent transfers (A.R.S. §§
44-1004 and
13-2205).
Contacting creditors
Now, with your asset protection
maximized, you are ready for the next step: contacting
your creditors. ● |
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