June 22, 2023
A series of blogs on Asset Protection….
Blog #3
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Previously, Harry mentioned engineering a delay to avoid creating a possible preference. Building on that, I had a client who funded a construction-related company and was owed around $1 million unsecured. The borrower was limping along but saw the writing on the wall and was likely to fail in the next few weeks. Its owner said it needed an infusion of $50,000-$75,000 “to get through this downturn.” While we knew it would take a lot more for it to survive, we used that amount and that time to our client’s advantage. We agreed to loan it $50,000 on a fully secured basis, taking a first lien on all the assets. We also insisted that our client receive a second blanket lien on all assets for the existing debt. If the borrower went into bankruptcy in the next 90 days, the second lien would probably fail as a preferential transfer. But if the new loan helped the company live more than 90 days, the client would then be secured for all its debt. It worked and the company failed about 6 months later, giving our client a blanket lien for all its debt. To the client, it was well worth the risk of the $50,000 new loan to get the lien position.
It might be counterintuitive to consider lending more money to a failing debtor, but it is often worthwhile to “buy” a lien position or a delay to get past a preference date.
We have more to say about Asset Protection Planning in our next post or podcast. Stay tuned…
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Previous Blogs:
Asset Armor: Protecting Your Wealth with Bernstein-Burkley’s Asset Protection Insights Blog #1
Asset Armor: Protecting Your Wealth with Bernstein-Burkley’s Asset Protection Insights Blog #2