Valuable personal property owned free and clear is difficult to protect from creditors. Consider, for example, my client who owned outright a private airplane. The client was unmarried and owned all assets in his individual name. The client had imminent legal problems so that any transfer of the airplane title would probably be deemed a fraudulent conveyance. One option was for the client to pledge the airplane for a bank loan. That option had two problems. First, my client did not have good credit and a loan secured by the airplane alone would be difficult and expensive. Secondly, he did not want to pay interest on a personal property loan and he had no place to shelter the loan proceeds if he did get the loan.
His main asset protection tool was to be the purchase of a new homestead and getting a home equity line of credit to borrow money for living expenses.
My client decided to pursue a combination of his home equity loan and a loan secured by the plane. He intends to propose that his bank cross-collateralize a line of credit on his house with a lien on his airplane. This solution would not incur interest costs over and above his home equity loan. He would not have excess loan proceeds to protect as borrowed funds would be spent as needed for expenses. It will be interesting to see if this client encounters problems in structuring a real estate mortgage cross-collateralized with a lien on his airplane.