How To Protect Your Property From Creditors

Are You Worried That You May Lose Your Property Because You Failed To Clear Debts? If Yes, Then Here Are Some Ways To Protect Your Property From Creditors.

Aug 21, 2015

A creditor may be a bank or a financial institution to whom you owe money. If you are unable to pay off your debt, then your property will be sold to recover the outstanding amount. Unlike gold, bank bonds, cash, and vehicles, real estate asset is an immovable property, and hence it is difficult to protect it from creditors. An ideal scenario would be to plan early. Unfortunately, not many people believe in asset management and hence face trouble when creditors come knocking on the door.

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If you want to protect your property from creditors, you can learn a few asset management tricks, some of which are listed below: 

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1. Gift Your Property to Someone You Trust

This is one of the most effective ways of saving your property from creditors. You can transfer the property to your children, family members or to someone you trust. This way the asset will be beyond the reach of your creditors. However, remember that in such an arrangement, you will lose control over the property as it will be under someone else's jurisdiction.

When you are gifting a property to someone, remember that transferring the property will not help you in escaping from existing creditors. Instead, you will be charged with fraudulent conveyance. A fraudulent conveyance is one where a transfer of property has been made in order to avoid creditors. Therefore, you should consider gifting the property before a creditor can claim it.


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2. Protect Commercial Real Estate

If you have an office space, the best way to protect it is to transfer the property to a limited liability company (LLC) or a limited partnership (LP). If the transfer is not a fraudulent conveyance and the liability company is a legal organization, your commercial property will remain shielded from creditors.

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3. Buy a Policy in the Name of Your Spouse

In India, married women and their assets are given protection under the Married Women's Property Act, 1874. As an Indian, you are allowed to buy a policy under Section 6 of this act and it would be beyond the reach of creditors and court attachments. Under this rule, you will lose all control over the policy apart for paying a premium. The policy allows the buyer to form a trust, which will comprise of your wife and children.

The advantage of this policy is that even if you are unable to pay off your debts, the creditors will not be able to claim money from your family. From the day you purchase the policy and make the trust, it will belong to your wife and children. So if you think that you are unable to pay off debts, you can sell off your property and buy this policy. However, remember that you have start planning very early to successfully implement this policy. You should start the selling process as soon as you realise your incapability of clearing the debts. If it is suspected that you sold the property and bought this policy in order to avoid paying off your debts, the law will not protect you from creditors.


Now that you have learnt different ways of saving your property from creditors, you can go ahead and take necessary steps. If you want to take professional help, you can find some land and asset management companies on CommonFloor.com

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