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How Asset Protection
Works
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Asset Protection works by changing the character of the assets held by the
debtor from one that can be easily seized and sold, to an asset that the creditor cannot
legally seize and sell. By transferring assets into certain types of trusts or limited
liability entities (corporations, limited partnerships and limited liability companies) in
which the debtor owns a portion of the interest in the entity but not the asset directly,
such as a beneficiary of a trust, stock, partnership interest or membership interest in an
LLC, the creditor is restricted only to the debtor's interest in the entity. There are two
general types of asset protection:
(1) Using off-shore jurisdictions to place assets outside the reach of creditors and
the U.S. court system; and
(2) Using entities formed within one of the states within the U.S. with favorable
debtor protection laws. Usually, these jurisdictions protect the limited liability nature
of the entity as a barrier against a direct judgment against the debtor and thus,
indirectly, protect the debtor against creditors who attempt to "disregard" the
entity in hopes of seizing the assets held within the entity. 
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