New US bankruptcy law offers loophole for the rich

[VeriSexy]

The new bankruptcy legislation being debated by the US Senate is intended to make it more difficult for people to walk away from their debts. But legal specialists say the proposed law leaves open an increasingly popular loophole that lets wealthy people protect substantial assets from creditors even after filing for bankruptcy.

According to a report in The New York Times today, the loophole involves the use of supposed ?asset protection trusts?. For years, wealthy people looking to keep their money out of the reach of domestic creditors have set up these offshore trusts.

But since 1997 legislation has been passed in five US states, Alaska, Delaware, Nevada, Rhode Island and Utah which exempts assets held domestically in such trusts from the federal bankruptcy code. People who want to establish trusts do not have to reside the five states; they only have to set their trust up through an institution in one of them.

Elena Marty-Nelson, a law professor at Nova Southeastern University, Florida told The New York Times today that the new legislation will provide debtors a loophole through which to keep their millions, "The millionaire's loophole that is the result of these trusts needs to be closed," she said.

Yesterday in Washington, Republicans in the Senate opposed the first in a series of Democratic amendments aimed at softening the effects of the bankruptcy bill on military personnel. The majority leader of the House vowed to get quick approval of the bill if the Senate did not significantly alter it.

Banks, credit card companies and retailers, who say it is now too easy for consumers to erase their debts through bankruptcy, favour the Senate?s bankruptcy bill.

The new bill doesn?t vary much from previous versions, which have been introduced in Congress, unsuccessfully, since 1998. Perhaps because the current bill was written so long ago, some legal authorities say, it does not address the new state laws that have allowed asset protection trusts to flourish.

"This is just a way for rich folks to be able to slip through the noose on bankruptcy, and, of course, the double irony here is that the proponents of this bill keep pressing it as designed to eliminate abuse," said Elizabeth Warren, a law professor at Harvard Law School. "Yet when provisions that permit real abuse by rich people are pointed out, the bill's proponents look the other way."

Money held in asset protection trusts can elude creditors because federal bankruptcy law exempts assets governed by "applicable non bankruptcy law." Intended to preserve rights to property under state law, the exemption makes it difficult for creditors to get hold of assets that they would not be able to seize through a non bankruptcy proceeding in state court.

The New York Times reported today that these asset protection trusts have become increasingly popular in recent years among physicians, who fear large medical malpractice awards, and corporate executives, whose assets are at greater peril now because of new laws.

While it is difficult to quantify how much money is sitting in domestic asset protection trusts, their popularity is undeniable, bankruptcy specialists said. "I've heard figures for foreign asset protection trusts and those probably are in the billions," said Adam J. Hirsch, a law professor at Florida State University. "I haven't seen any figures for domestic asset protection trusts, but they could very well be the same."

Domestic asset protection trusts can be set up by the same people who plan to benefit from them. In addition, there are no caps on the dollar amount of assets they can hold and no restrictions on their purpose, Ms. Marty-Nelson said. One limitation is that the trusts cannot be set up by people who are already insolvent.

Ms. Marty-Nelson said the bankruptcy bill should at least apply a cap to domestic asset protection trusts. Better yet, she said, the bill should exclude these trusts from the federal exemption altogether.

"Congress can and should close this huge loophole," she said


http://www.finfacts.com/irelandbusin..._1000657.shtml

[mockingbich]

HAHA - rich people can always get out of everything - that's why I plan on making a lot more money

[Tempest]

Wow.. what a shocker..

[spunkmaster]

Originally Posted by mockingbich

HAHA - rich people can always get out of everything - that's why I plan on making a lot more money

Good answer