Attorney advised pre-paying 6 months of Airbnbs before filing - SECOND OPINION WANTED

[despritfreya]

I'm in a strange (not bad) limbo now, where I'm not earning money and not paying back debts either. Could I keep doing that and spend the money I have left over the next 6 months, then file?

If that is advisable under your situation, then yes. Talk to your attny.

One even said I could buy a house, even though I clearly remember reading somewhere reputable that homes are exempt only if they were purchased 2 or more years before filing.

The attorney was correct. Whatever you read was either wrong, you remember it incorrectly or you misunderstood. The 2 year rule relates to being able to use the exemptions of the state where the bk is filed. One must reside in that state for 2 years to use state exemptions. If one has not be living in the state for 2 years, in general, one would use the exemptions of the state he/she moved from.

My impression so far is that a LOT is up to the trustee, bankruptcy rules can be interpreted to quite some degree, and the outcome ultimately boils down to the relationship the attorney has with the trustee.

Only partially true. A trustee is not your friend. He/she has a fiduciary duty to the creditors, not you. His/her job is to find assets and, if the asset 1) has enough “value") and 2) is not exempt, seize it for the benefit of the creditors. If he/she fails in his/her duty he/she can (and will) get sued by the creditors.

Mine repeatedly told me (and even wrote so in an email with their team CCed) that I can prepay 6 months of rent at $4k/mo, for example, because it's a living expense. . . So let's say I talk to other CA BK attorneys, and they tell me prepaying the rent is not OK. What then?

You have to make your own “informed” decision. You go with the one you think is correct and feel comfortable with.

Des.

[justbroke]

So let's say I talk to other CA BK attorneys, and they tell me prepaying the rent is not OK. What then?

That's the fun part about representation. In any type of litigation, (almost always) someone will end up on the losing side. Now, is that because the attorney misrepresented something or because their client did something that was not a protected (allowed) action. The attorney is a consultant of sort and is telling the client the potential outcomes and their interpretation of the law (which I can't do). Based on that information from the attorney, the client makes a decision.

As Des wrote, you have to make the decision after being duly informed by your attorney. They represent your best interest but that doesn't mean that the outcome will be what you expected or were told. As Des also wrote, you have to go with the decision, or reject the decision, based on how comfortable it -- and the attorney -- makes you feel.

In the words of the (infamous) Jerry Callow... "win some, lose some" is the expected outcome of all litigation.

[nozar]

The attorney was correct. Whatever you read was either wrong, you remember it incorrectly or you misunderstood.

I found the source:

If you sell nonexempt property within 1,215 days prior to your bankruptcy filing and use the proceeds to increase the value of your homestead residence (by paying down the mortgage, making improvements, or buying a more expensive house), the court can reduce your state homestead exemption by the amount of the enhancement to the extent that the value exceeds a set limit.

What does "nonexempt property" include? Say I had $30k (the CA wildcard limit), put it in a brokerage account, traded, and made $1000 over the last 5 months. Then I withdraw $31k. Is that "nonexempt property"?

Or I found some forgotten crypto while looking for assets to declare. If I sell that to buy the house, is that nonexempt property? Crypto *is* treated as property by the IRS.

If I get a tax refund, is that nonexempt property? Tax refunds are not exempt, per Nolo.

If buying a house is allowed, then isn't that a trivial loophole? Stop paying your debts, park all your money in a house, file BK, wait a year, sell house -> money back. I know Florida allows this, and I have a FL driver's license, can't prove having lived in FL for more than 3 months within the past 3 years.

[justbroke]

Any cash or property that you can't exempt, is non-exempt property. That's the definition. If you can exempt something, then it is simply exempt from inclusion in the bankruptcy estate. I can't interpret the provisions for you and the impact of any California exemption election that you make (System 1/System 2).

As for the 1,215 days, I believe the specific provision that you have just provided, is related to exemptions (522). What I write next is why that part likely exists. For me, in Florida, I enjoy an unlimited homestead exemption. So to prevent me from buying a $8,000,000 home with my cash just days before filing, the bankruptcy code tries to add some sort of seasoning of that purchase before it can be claimed in full. I suppose this was to level the playing field -- somewhat -- between States like Texas and Florida, where the exemption is unlimited, and other States that have rather pathetic homestead exemptions.

For me, under that provision I cannot claim the entire $8,000,000 in exemption on a home I purchased within 1,215 days of filing. In that way, the "unlimited" part is a qualified unlimited exemption for me. I could only protect "$170,350" (2019) because I purchased the $8,000,000 home within 1,215 days of filing. If I waited 3.5 years to file, the entire $8M would be protected for me! Yeah me! This is probably why Bernie Madoff purchased expensive properties in Florida.

You need a bankruptcy attorney in California that is going to guide you and that you trust. You also may be trying too hard to protect this money... and you may be overthinking this! It reads as though you don't want to turn over one single penny to the Trustee. I don't know if anyone, including your attorney, can guarantee that. But listen to your attorney and follow or don't follow their advice. This forum is limited as we can't advise you on what to do.

despritfreya provided some information and basically said to either trust your attorney or do not. Technically we can't provide a second opinion because I don't believe anyone that has responded is licensed to practice in California. We only provided our musings and ask you, since you are represented, to trust the attorney or find another California attorney. We don't mind talking about the issue, but we can't tell you how to proceed.

I don't think that you'll receive a response that says "go ahead and do that" or "do this other thing." We're cheering for you and a successful outcome. I will tell you that when I filed back in 2008, I was personally worried about the Trustee going after deposits, but it was a Chapter 13... so it wasn't an issue. It is an issue (in a Chapter 7) and that is all that I wanted to relay. I want you to be prepared for an outcome where you may not be able to protect "all" of your money.

There are just too many factors and I would never venture a guess or pose a strategy to anyone when it comes to exemptions and pre-bankruptcy planning.

[flashoflight]

I got a bit of a different tack on this and I'm also from California.

Ultimately, you are the captain when deciding where the boat will go. Your lawyer is the navigator and can suggest a course that will avoid the storm, but you are the one who is going to decide. Heck, the navigator/lawyer may not be able to tell you if the storm is minor or a hurricane and might not want to recommend a particular course. It's up to you who is going to decide how bad the storm is. Personally, prepaid rent sounds very sketchy but maybe you think it is OK.

I see some other bigger issues that you need to deal with such as earning no money. It's better to declare BK when your situation as stabilized to the point where your income/expenses are roughly equal. Right now you are in the red earning no money. You could be living with family for free or taking advantage of eviction moratorium, but I wouldn't rely on that as a viable long-term arrangement. The BK nuclear option has a long cooldown before you can press the button again, which is why you should wait until your income and expenses have stabilized and you're not living off of savings and free temporary lodging.

I like talking about exemption planning and know California, but you need to come up with the plan yourself. I don't like your prepaid rent idea but do whatever you want. There are lots of ways to convert cash into exempt in California, but you're too dependent on living off of the cash esp. with the prepaid rent thing. Every idea involves spending the cash and it would be completely gone or in a retirement account if I were filing BK with the big homestead.

[despritfreya]

I found the source:

If you sell nonexempt property within 1,215 days prior to your bankruptcy filing and use the proceeds to increase the value of your homestead residence (by paying down the mortgage, making improvements, or buying a more expensive house), the court can reduce your state homestead exemption by the amount of the enhancement to the extent that the value exceeds a set limit.

And here is the problem. . . The website is simply WRONG. Whoever wrote the comments under “Rules Preventing You From Sheltering Nonexempt Funds in Exempt Residential Property” has not read the Bankruptcy Code.

Here are the two subsections of 11 U.S.C. § 522 that Nolo is mixing up:

11 U.S.C. § 522(o) states:

(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in. . .

(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;
shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.

11 U.S.C. § 522(p) states:

(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $170,350 in value in—
(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(C) a burial plot for the debtor or a dependent of the debtor; or
(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

These are 2 separate provisions that Nolo is mixing together.

There is a 10 year look-back in the provision under (o) that disallows that portion of a homestead that can be attributable to a transfer into the property with the intent to hinder, delay or defraud a creditor. Proving an intent to hinder, delay or defraud is very difficult. As a result, this provision is rarely used.

The 1,215 day provision of (p) has absolutely nothing to do with (o). (p) deals with limiting the total amount of the allowed homestead exemption unless one has lived in the property just over 3 years. This provision was enacted to eliminate the ability to move from a low homestead state to one that has an unlimited homestead and then file bk. Interestingly, this provision does not apply if you have not moved to another state when purchasing the new home.

I have found numerous inaccuracies on Nolo. I do not recommend “relying” on the “information” contained therein.

Des.

[justbroke]

I have found some interesting things on Nolo as well. I rarely use them as a reference. Even though Nolo has a somewhat good reputation as an online resource, you still need to speak with your attorney in your State who understands the current law. Sometimes Nolo has many generalities which may not apply to your particular State or case. So, caveat emptor.

[nozar]

Thanks everyone. I understand not wanting to give advice to very particular situations, especially out of the state you have experience with.

What's concerning me about "talk to your attorney" (which is warranted advice) is that I expect (as I have already seen) conflicting opinions from different CA attorneys provided with the same facts about my case. And I understand the law is not black and white.

I'll take some time to ponder this.

It's better to declare BK when your situation as stabilized to the point where your income/expenses are roughly equal. The BK nuclear option has a long cooldown before you can press the button again, which is why you should wait until your income and expenses have stabilized and you're not living off of savings and free temporary lodging.

This has been a very harsh lesson for me, and I absolutely don't expect to have to file BK again. I have high earning potential, and good options to permanently leave the US. (I could do that in fact, right now; I don't suppose the Interpol will come after me for ~$200k in consumer debt.) That said, can you expand on why I would delay the bankruptcy? With the CA wildcard, I can exempt $30k, off of which I can live for a year in Florida without needing a job (or while holding a part-time job), while I recover mentally from all of this.

You also may be trying too hard to protect this money... and you may be overthinking this! It reads as though you don't want to turn over one single penny to the Trustee. I don't know if anyone, including your attorney, can guarantee that

Overthinking - definitely. But not because I want to hold onto that money that much. I just really don't want to do something that ends up putting my life on hold for years, or getting investigated, or charged with whatnot ("attempt to hinder or defraud" seems possible). Or some huge hassle like I do all the work to buy a house and move into it, only to find out after filing that I need to sell it and turn over the money.

[justbroke]

In most cases, people with the ability to settle with creditors will settle with their creditors. In your situation, my read, you want to give creditors as little as possible. It's a tenuous situation. I don't discourage or blame anyone for bankruptcy pre-planning but I think we're saying that your just need to make a decision and do it.

The "talk to your attorney" was only because you have one and their advice seems like a reasonable calculated pre-planning step to spend down your cash. Some of us only wondered how that doesn't cause some other issues; and they may not even be your specific issue, but your landlord's issue.

flashoflight basically said just live... and get to a point where you are stable.

desprifreya is saying that there may be some issues with some of your pre-planning, but nothing criminal was mentioned at all.

Finally, you are going to find different attorneys with different opinions on pre-planning. There's a fine line between pre-planning and the other things.

[flashoflight]

This has been a very harsh lesson for me, and I absolutely don't expect to have to file BK again. I have high earning potential, and good options to permanently leave the US. (I could do that in fact, right now; I don't suppose the Interpol will come after me for ~$200k in consumer debt.) That said, can you expand on why I would delay the bankruptcy? With the CA wildcard, I can exempt $30k, off of which I can live for a year in Florida without needing a job (or while holding a part-time job), while I recover mentally from all of this.

You sure have a complicated situation. I didn't know or forgot about some of your particulars.

In general, BK should only be done when your situation has stabilized. But you probably can't do a 7 if you get a high earning job or just got a job offer for that high earning job. With 200k in consumer debt, it won't take more than a few years with fees and high interest for it to approach the chapter 13 limit which is a bit above $400k. During COVID, how realistic is it you are going to get that high earning job or any job? Another possible outcome is you move to Florida and run out of money due to lack of jobs and get back in the hole with no ability to file another BK.

TLDR - It sounds like it's a gamble either way and you will ultimately have to make your move and pray it was the right one.

If you really can move overseas today, spend down to $30k remaining, and start working immediately, I would do that and Zoom to your 341 meeting. It's so hard to find a job in the US right now. We just had a job opening where there are 450 applicants and the pay is crap.

[nozar]

During COVID, how realistic is it you are going to get that high earning job or any job?

I'm confident I can get a high-earning job within a month or two once I file and get some mental space from all of this. Though it would probably be wiser to get a part-time job with more moderate earnings, e.g. below the Chapter 7 means test income limit.

If you really can move overseas today, spend down to $30k remaining, and start working immediately, I would do that and Zoom to your 341 meeting.

Don't I have to be a US resident in order to file, per 11 U.S. Code § 109 - Who may be a debtor?

[justbroke]

Don't I have to be a US resident in order to file, per 11 U.S. Code § 109 - Who may be a debtor?

Depends where your domicile is located. If you are domiciled domestically but living abroad, you should be able to file under the definition as it clearly reads "or domiciled." That is likely meant to help servicemembers abroad, or maybe even those in foreign service. Now you could likely argue over just what "domicile" means as it's not defined in the bankruptcy code (section 101).

[nozar]

2021 update - I'm not going to worry about prepaying rent. Prepaying rent was in fact the only way I was able to rent anything at less than outrageous short-term tourist prices, given my horrible credit score (<400). This isn't "pre-planning", it's a necessity to not live on the street, or for a week in an Airbnb.

[justbroke]

I have never seen a credit score < 400, and that would certainly prevent you from obtaining a normal lease. Prepaying a lease is done in situations where the credit score is too low. I don't know how long you are going to avoid filing bankruptcy but it's good that you have a roof over your head.