Guiding Your Client Through Bankruptcy Exemption Planning
When a client is preparing to file bankruptcy, one of the issues you must address is pre-bankruptcy exemption planning. The U.S. Appeals Court for the 8th Circuit has provided guidance in this area based on the In Re Addison decision (8th Cir. 2008). The 8th Circuit Court of Appeals ruled that Section 522(o) of the bankruptcy code allows pre-bankruptcy exemption planning in the manner that was allowed prior to the enactment of Section 522(o). The addition of Section 522(o) was a result of the 2005 Bankruptcy Reform Act.
Section 522(o) directs the bankruptcy court to reduce the debtor's homestead exemption by the amount of any non-exempt property the debtor may have transferred to the homestead. This transfer is usually accomplished by paying down a mortgage. The key as to how the court views the transfer will turn on the determination as to whether the transfer was intended to hinder, to delay, or defraud creditors, and if the transfer occurred in the ten years prior to the bankruptcy.
The court in Addison held that no evidence existed that the debtor acted with intent to hinder, delay or defraud creditors, except that the debtor increased the amount of his exempt property and decreased the amount of his non-exempt property. This interpretation by the court means that case law existing prior to the enactment of section 522(0) remains good law and that the overall meaning of the phrase "hinder, delay or defraud" will be determined under the particulars of the pre-existing case law.
The Addison case highlights court ideology that could provide helpful strategies as you work with your client to attain a workable bankruptcy exemption plan. To review the Addison decision in its entirety, visit the United States Court of Appeals, Eighth Circuit. Enter case number 07-2064/07-2727.
