Beware of asset protection strategies, if you are in default on a loan, there are better ways of protecting yourself.

Some small business owners, understanding their vulnerability to personal loss from the normal risks of business, or more recently from potentially destructive forces of our down turned economy, turn to their lawyers for ‘iron clad’ asset protection, protecting cash, property, real estate, stock, whatever may be valuable.

Problem: your assets may be protected from creditors’ attack, but if one is interested in doing a workout on a secured loan, asset protection techniques may not work as well as you may think.

Here is why.

Asset protection may successfully put a barrier between your creditors and your assets, so the assets may not be reached, foreclosed on, liquidated. However, if you have significant debt that may be in default, you will have a far more difficult time, negotiating a debt forgiveness workout.

It’s like asking the jury to disregard the last remark, they heard it, it has impact, it cannot be pretended it did not happen. If your attorney successfully locks up and protects great value in identifiable assets, it’s like telling the Bank, SBA or whomever, that it’s here but you cannot get at it, so disregard it when considering my offer in compromise application. They won’t.

It will not happen, so yes, your assets are protected but also you will not experience the benefits of a valuable debt forgiveness through a workout negotiation.

So one objective was satisfied, asset protection, but another one was not satisfied, debt forgiveness through an offer in compromise.

The results, you either unlock your asset protection and use it to pay down the note or live under the cloud of a lien forever. That didn’t work out as planned, but your lawyer promised you protection, which he gave you, but he did not understand that this protection would be your undoing when you default on a loan and want to do a workout.

There are far better ways of protecting your assets, by presenting your financial picture in the light most favorable to your end goal, protection of your assets, so when you are in default on a loan, you can successfully negotiate a workout while protecting your assets, without a traditional legal, iron clad asset protection plan in place.

It requires a case by case analysis and a different type of asset protection, one which is far more subtle and somewhat transparent, but allows you to enter into a debt forgiveness plan with your bank with great success and little loss.

What is this technique? Depends on each individuals circumstances, there are no generalizations, but the process works, it’s more of a recasting and adjusting your financial picture without fraudulent transfers and without using trusts and limited partnerships, it’s the smart way to do asset protection and debt reduction together. This is what you want, this works. A bullet proof asset protection plan is asking for a fight, one that you will lose.

Call us for help, 413-584-2581. Norm will arrange a no-obligation teleconference.