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A Way to Hide Money From a Bankruptcy Trustee in Arizona. That Doesn't Work.

By Joseph McDaniel, Esq.

Here's kind of a cute idea that somebody cooked up.

I swear, the creativity of people who didn't go to law school has no limits! 

The simplest version is that the prospective debtor gives a ten grand retainer to a lawyer who's going to litigate in defense of some "claim" if a creditor brings a lawsuit post-bankruptcy filing.

Then when the lawsuit doesn't happen, the collusive lawyer refunds the dough to the collusive debtor, after keeping a carrying charge, and a good time is had by all. That's the evil plan, anyway.

Except that it doesn't work!

Instead, the Arizona Bankruptcy Trustee steps into the debtor's shoes when the bankruptcy is filed, and if the debtor has the right to demand a refund from the lawyer holding the stash, then so does the trustee.

Do you think it's the trustee's first rodeo?

p.s. It's not.

p.p.s. Don't try this sort of bush-league technique for hiding money under your mattress when you file a bankruptcy in Arizona. First you'll have to wear the Cone of Shame, and then it will get bad. You might not lose your discharge or your freedom, but you might. 

p.p.s. The Arizona Bankruptcy Exemptions are pretty generous; you can keep a lot of stuff when you file. Remember that about 97% of bankruptcy filings in Arizona are no-asset cases, which means that you keep everything you listed! Note also that you can keep everything in every case, exempt or not, as long as you buy it back from the bankruptcy trustee! The trustee won't mind! But wait! There's more! You can't buy back your tax refund, because that's money, and the trustee would sell it to you, but the price would be the precise amount of the tax refund, which would make for a silly transaction.  Ditto inheritances where the relative died prior to the filing, or within about six months of the filing. See 11 USC 541.

Full post as published by Arizona Bankruptcy Attorney Blog on January 19, 2011 (boomark / email).