Debtors Keep Your Guns!
Under new legislation, Wyoming residents who file for chapter 7 bankruptcy on or after July 1, 2016 will be allowed to keep up to three firearms with a combined value not to exceed $3,000. In addition, under the new law, codified at W.S. §1-20-106(a)(v), a debtor will be allowed to keep up to 1,000 rounds of ammo for each firearm, the value of which is not counted against the $3,000 limit.
An unintended consequence of the new law may be that some debtors will engage in what amounts to money laundering. There is no exemption for cash in Wyoming, which means that if you have $4,000 in your checking account on the day you file, the bankruptcy trustee will seize it all. After July 1, a debtor may, shortly before filing bankruptcy, spend $3,000 on two AR-15s and a Glock 17 pistol, and then spend another $1,000 on ammunition. The debtor would disclose these transactions to the trustee, who would then allow the debtor to keep the guns and ammo. Post-bankruptcy, the debtor would be free to sell the firearms and ammunition for cash.
A debtor in that scenario would likely have significant transaction costs, i.e., the difference between the retail cost to buy and the lower resale value to a firearms dealer, so this concern may be largely theoretical. On the other hand, unlike vehicles guns tend to hold their value and if a debtor manages to keep transactions costs low, then this option might be tempting.
Whether the U.S. trustee would cry foul is an open question. If a debtor engages in conduct with the intention of hindering, delaying or defrauding creditors, that is grounds for revocation of the debtor’s discharge – a bad thing for the debtor because it unravels the entire bankruptcy. The chapter 7 process is currently designed, however, so that after the trustee makes a determination that there are no assets for the trustee to seize and sell, the case is closed. After case closure, the practical ability of a trustee to police a debtor’s conduct is limited.
If you already possess a number of firearms and are contemplating filing bankruptcy, waiting until July 1, 2016 to file could be in your interest. The advantage of waiting to file is reduced, however, if you expect to receive a large tax refund next year, because each month you wait to file increases the amount of next year’s tax refund that the chapter 7 trustee may seize.
© 2016 Clark Stith
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