21 April 2011
The answer is: most likely. The exemption scheme you choose is important. To understand the basics of what is happening with respect to assets when someone files for bankruptcy, please read the blog posted on 15 April 2011. Now that you have the introduction, we can take it to another level.
Protecting an IRA is important, as your future retirement may be at stake. Careful thought is needed. As stated in the other posting, both Massachusetts and Connecticut allow their residents to choose between: 1) bankruptcy exemptions; and 2) state exemptions and federal non-bankruptcy exemptions. In Massachusetts, state exemptions only protect IRA’s to the extent the funds are reasonably necessary for the support of the debtor or his dependents. One might be inclined to think that a substantial IRA fund would be in jeopardy under a chapter 7 filing; However, the code needs to be read carefully. In In re Euse, a recent case in Nebraska, a bankruptcy court noted that the law allowed debtors choosing the state exemption scheme to also enjoy protection of their IRA in full. No. BK10-43179-TLS, 2011 WL 294143 (Bkrtcy. D. Neb. Mar. 2, 2011). The In re Euse court observed that the bankruptcy code permitted a debtor to choose state exemptions, and had an additional provision allowing the exemption of “retirement funds to the extent those funds are exempt from taxation under specified provisions of the Internal Revenue Code.” It based this decision on an addition to the bankruptcy code made under Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 codified at 11 U.S.C. § 522(b)(3). It found this provision encompassed IRAs. In that case, the debtor was entitled to keep his entire $163K IRA.
Before you decide to make your own decision on how to apply exemptions in bankruptcy, take heed of some points. Understand that many bankruptcy decisions, including In re Euse, is not binding upon any other court. And although the court based its decision on a part of the bankruptcy code that applies whenever state exemptions are chosen, each person has a unique set of assets, financial situation, and considerations when filing bankruptcy. (The snake you are watching might not bite you, but the one you do not see might.) One should seek qualified counsel before making the decision to file for bankruptcy.
Thursday, April 21, 2011
Friday, April 15, 2011
Can I keep my assets if I file for bankruptcy?
15 April 2011
The answer is: most likely, but it depends.
This, and other questions a person that is contemplating bankruptcy may have, are very important because of what is at stake -- your assets (at a minimum). To understand the answer to this question, one must understand what is in (legal) operation during a (chapter 7) bankruptcy.
When someone files for (chapter 7) bankruptcy, what is known as a “bankruptcy estate” is created. 11 U.S.C. § 541(a)(1). Basically, it includes everything a debtor has, with some rare exceptions: Best to think of it as including everything. Since (chapter 7) bankruptcy is a liquidation, assets are subject to forfeiture. The reason that most debtors are able to keep their assets is because of exemptions. Rousey v. Jacoway, 544 U.S. 320 (2005).
Exemptions are laws that protect certain assets, or a certain value of some assets, from collection by creditors. In bankruptcy, exemptions protect these assets (or a certain value of an asset) from liquidation by the chapter 7 trustee. States are allowed to choose to allow a debtor living in their state to have the choice of what set of exemptions, known as an “exemption scheme” in the profession. They can allow a debtor to choose between: 1) bankruptcy exemptions; or 2) state and federal non-bankruptcy exemptions. States may also limit their residents to only #2. Massachusetts and Connecticut are states that allow their residents to choose between #1 and #2.
Having the choice of exemption scheme is a great benefit, but making the choice is one of the most significant decisions one must make when filing. It is a decision an experienced bankruptcy lawyer should make. It can be very tricky (as the other blog posted today illustrates), and when the debtor cares a great deal about their assets, it should be done carefully. Sometimes the titles of the exemptions can be misleading because there is a legal definition associated with it that a person who does research more than simply looking at the title of the exemption will not be aware of. Applying exemptions using common everyday interpretations can be mistaken. Use great care when exempting an asset of significant value or one that has sentimental value. If you want professional help with this choice, and other choices one must make before filing a bankruptcy, feel free to give us a call.
The answer is: most likely, but it depends.
This, and other questions a person that is contemplating bankruptcy may have, are very important because of what is at stake -- your assets (at a minimum). To understand the answer to this question, one must understand what is in (legal) operation during a (chapter 7) bankruptcy.
When someone files for (chapter 7) bankruptcy, what is known as a “bankruptcy estate” is created. 11 U.S.C. § 541(a)(1). Basically, it includes everything a debtor has, with some rare exceptions: Best to think of it as including everything. Since (chapter 7) bankruptcy is a liquidation, assets are subject to forfeiture. The reason that most debtors are able to keep their assets is because of exemptions. Rousey v. Jacoway, 544 U.S. 320 (2005).
Exemptions are laws that protect certain assets, or a certain value of some assets, from collection by creditors. In bankruptcy, exemptions protect these assets (or a certain value of an asset) from liquidation by the chapter 7 trustee. States are allowed to choose to allow a debtor living in their state to have the choice of what set of exemptions, known as an “exemption scheme” in the profession. They can allow a debtor to choose between: 1) bankruptcy exemptions; or 2) state and federal non-bankruptcy exemptions. States may also limit their residents to only #2. Massachusetts and Connecticut are states that allow their residents to choose between #1 and #2.
Having the choice of exemption scheme is a great benefit, but making the choice is one of the most significant decisions one must make when filing. It is a decision an experienced bankruptcy lawyer should make. It can be very tricky (as the other blog posted today illustrates), and when the debtor cares a great deal about their assets, it should be done carefully. Sometimes the titles of the exemptions can be misleading because there is a legal definition associated with it that a person who does research more than simply looking at the title of the exemption will not be aware of. Applying exemptions using common everyday interpretations can be mistaken. Use great care when exempting an asset of significant value or one that has sentimental value. If you want professional help with this choice, and other choices one must make before filing a bankruptcy, feel free to give us a call.
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