How to (legally) hide your bank account from creditors
Updated : August 18th, 2022
Generally speaking, your financial records are private. This includes your tax returns and your bank statements. But under certain conditions, a creditor or an aggrieved party in a legal dispute (such as a divorce) can access information about your personal finances.
How can you keep this information private?
Hide Your Bank Account from Creditors, Divorce, and Lawsuits
- Land Trusts
- Holding Trusts
- Offshore Asset Protection Accounts
The best way to hide your assets is to make them not yours – on paper, at least. If you can obscure access to information about your personal finances, aggrieved parties like lenders and plaintiffs won’t have an easy time finding out what they want to know.
It’s important to realize that in certain situations, you may be placing personal finance information right into the hands of a lender – and this information can be used against you in the future. If you’ve ever applied for a personal loan, mortgage, or even credit card where the financial institution, your banking information is typically part of the application. You’ve given this lender an easy way of checking into the source of the monthly payment.
That’s why it’s always a good idea to consult with a tax attorney or lawyer who specializes in financial matters to see how you can set up some asset protection for your liquid assets like cash and stocks, and even your illiquid assets like real estate and personal vehicles.
Here’s the reason you want to do this: Whenever a creditor or lawyer is contemplating legal action such as a lawsuit, settlement, or wage garnishment (taking money out of your paycheck), they are going to do a brief calculation to determine how likely it is to get something out of their efforts. If the reward is not worth the effort, they’ll typically give up.
Hide Your Bank Account from Creditors, Divorce, and Lawsuits
You should learn how to hide your assets if you think you might ever be in a situation like this. Even if you own a million dollar property, an investment portfolio, and a yacht, you can hide all these things from creditors and lawyers.
A trust is a legal vehicle that is essentially a vessel for holding assets – in this case, landed property (real estate). The assets in the trust are administered by a fiduciary such as a lawyer, who is referred to as the trustee. Although they are placed into the trust by a trustor or grantor for the enjoyment of a beneficiary, the trustor and the beneficiary can actually be the same person.
This means, for instance, that your own personal property could be placed into a trust, and you can enjoy its use. There are some disadvantages to a land trust, which include restricted access to certain types of mortgages (for example, if you need to refinance), loss of redemption rights in the event of a foreclosure, and the potential loss of homestead exemptions. A homestead exemption is about helping someone stay in their own personal property, while property placed into a land trust is not.
Taking note of these disadvantages, a land trust might prove very beneficial for protecting your residence from creditors outside of a mortgage lender or a divorce lawyer. It’s most certainly useful if you have been investing in real estate with rental properties.
A holding trust is the same as a land trust in most states, so we’ll continue talking about the general benefits of these legal vehicles. In most states, the holding trust is a revocable trust, meaning that the details of the trust can be changed at any time.
This is in contrast to an irrevocable trust, which cannot be changed, though there are ways around that. One of the biggest benefits provided to trustors and beneficiaries is the privacy afforded by a trust. Personal and business creditors will have a hard time suing you to liquidate the house to settle a debt because it is not associated with your name. In fact, it’s not even yours! Legally, it belongs to the trust.
A trust can also protect you from a disgruntled plaintiff, such as a tenant on a rental property, or even someone who is just an opportunist looking to chase a windfall lawsuit. Another benefit to trusts is that they help avoid the process of probate in the event of death, making it much easier for the asset to be immediately enjoyed by named beneficiaries. A quick look at average American debt by age will show you that younger generations are racking up more debt in all areas of life. Keeping a landed family inheritance out of the eyes of their creditors can make the life of your children and grandchildren much easier as well.
An LLC is a limited liability company. An LLC is not the same thing as a corporation, so it does not afford the same degree of protection in all areas. An LLC is a pass through entity when it comes to taxes, meaning that the business activity of the LLC will have to be reported on your personal income tax return.
LLC documents are matters of public record, so an LLC won’t entirely obscure your ownership of things like property, cash, stocks, or whatever else. However, there are certain cases where an LLC can provide anonymity, like an LLC formed in the state of Wyoming. A Wyoming LLC is famous in legal circles for providing a higher degree of anonymity due to relaxed requirements of listing the owners and partners. A Wyoming LLC can even be combined with other legal vehicles (like a trust) to provide total anonymity.
Additionally, an LLC can provide you with some legal protection in terms of liability, unless it is liability tied to intentional malice or gross negligence. But keep in mind that the LLC in and of itself may not entirely protect you from a creditor or lawyer, especially in cases where it’s clear the LLC is just a paper charade and a judge can order piercing the corporate veil.
Offshore Asset Protection Accounts
Offshore asset protection accounts may have a shady reputation among the average Americans who are concerned with paying their bills on time and whether or not they’ll be able to enjoy student loan forgiveness. But they are well known and established in the upper echelons of finance as perfectly legal vehicles for obscuring assets, even assets that exist within the United States.
Offshore asset protection does not have to mean hiding your cash in the Bahamas or owning property in South America. Rather, it means creating the owner of such assets on paper in a different country (hence, offshore). One of the more popular forms of the offshore asset protection strategy is the Cook Islands Trust. The Cook Islands are a small country in the Pacific Ocean that has already shown in legal case precedents that they won’t respond to injunctions issued by courts in the United States. Of course, setting up an asset protection strategy that requires relying on international sovereignty is an issue best navigated by an experienced attorney, but if you have considerable assets in question, it’s worth exploring.
Does this really work?
You may be wondering about these specific strategies in cases where someone knows what’s really going on beyond the paper – for instance, in the case of a disgruntled ex-spouse or business partner.
The thing about some of these strategies is that they prevent a party seeking some specific goal from actualizing the outcome they want in a courtroom. Legally, for instance, it’s not relevant that you use your yacht every weekend for offshore parties of champagne, caviar, and gambling in international waters. The yacht itself is owned by an entity in a different country. Or maybe it’s owned by a Wyoming LLC that obscures the name of the actual owner on paper.
However, it’s important to know whether your state is a common law state or community property state, as this can have serious implications on property acquired personally after you are married to someone. Regarding financial relationships, these strategies will not fend off every type of creditor.
A creditor who is directly related to the asset in question, like a mortgage lender or vehicle lender, will make sure they still have access to the asset in question. This is true even if it’s owned by a business or trust since the trust or business becomes the borrower.
How To Hide Your Bank Account
Asset protection planning is not just for someone with business debt or a consumer looking to avoid bankruptcy. In fact, by that time, it’s probably too late to avoid something like bank account garnishment or phone calls from a collection agency with your contact info.
If you’ve ever been buried under mountainous credit card debt, faced a court order to relinquish assets to a debt collector, or trapped in a settlement with a disgruntled plaintiff (like an ex-spouse), you know the feeling of wishing you knew how to hide from debt collectors or lawyers. The unfortunate irony of escaping the fallout of unpaid debt or a legal judgment is that you need to prevent this type of situation before it occurs.
A judgment creditor or judgment creditors have the legal aid of a judge’s approval on their side for debt collection. They have a number of resources at their disposal to enforce the judgment unless you are judgment proof.
While financial institutions may not be able to garnish social security benefits, plaintiffs in a court settlement can, and so can the IRS. Regarding W2 (employment) income or 1040 (self-employment income), creditors can enact some wage assignment to redirect money to themselves or even leave you with a frozen bank account. It’s for these reasons that you want to explore how to become judgment proof – meaning, someone who does not have enough assets for a debtor.
Being judgment proof does not mean you need to be impoverished or engage in fraudulent behavior. In any case, a fraudulent transfer is going to create other legal problems, so that won’t be the way to go. Rather, there are ways to make funds exempt funds and income exempt income in terms of restructuring the paperwork around your assets to hide them from becoming a potential judgment debtor.
Of course, learning how to get out of debt is about more than just hiding what you owe. There is also the proactive consideration of how you manage your personal finances and what goals you set in life.
Remember that financial records are typically off-limits to interested parties. You are never required to just hand over banking information, so keep this in mind if a creditor tries to sweet talk you into doing so. Their only recourse is to pursue legal action if they don’t have that information already. And there are ways to make that legal process untenable and not worth pursuing.
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