Depending on your state, exempt assets can include a home, life insurance, an annuity and tax-sheltered retirement accounts.
In such a case, it is entirely possible that a court will surcharge the exempt assets towards payment of the debt.
The Bankruptcy Court found that Marciano had failed to turn over his assets to the Bankruptcy Trustee, and failed to allow an inspection of his exempt assets.
We have yet to see a case where a debtor had exempt assets, but placed the remaining assets into an offshore asset protection device and refused to bring them back.
The new bill will make it harder for individuals to declare Chapter 7, the most common form of bankruptcy, which allows debtors to walk away from their debts, often while shielding exempt assets like cars and homes.
On December 5, 2011, the Court held Marciano in contempt, but ruled that he could purge the contempt by filing complete and accurate schedules of his assets, turning the assets over to the Trustee, and allowing an inspection of exempt assets.
That could well be a violation of IRS rules that prohibit tax-exempt organizations from transferring assets to private individuals.
Under capital gains tax rules, such plants are "wasting assets" and exempt from capital gains.
In practice most affluent folks will end up spending down assets, including possibly exempt ones, during a five-year repayment plan.
For example, assets held in a qualified pension or profit sharing plan are exempt from state-law claims, such as malpractice claims.
The assets are then sold, with most of the taxable gains attributed to the tax-exempt charity.
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