Some Assets Are More Protected Than Others: Bankruptcy Exemptions

by Susanne Robicsek, North Carolina Bankruptcy Attorney

November 7, 2009

Susanne Robicsek 2009If you are considering bankruptcy to deal with debts you can’t pay, you are probably also worried about what you might loose if you file.  As unemployment rates continue to rise, it is a good idea to try to bunker down and prepare for the worst so you can ride out the storm if you find yourself among the unemployed, or facing a pay cut.

There was some good advice in an article in the Wall Street Journal on November 6, 1009 that can be applied to your financial situation in general. If you follow their advice, it will also help you keep more of your property if you find yourself facing filing for bankruptcy.

Asset protection is something that almost everyone should have a basic understanding of; at the very least knowing a few important types of property that creditors are not allowed to touch.

The most important asset most people own is often their residence.  Many people falsely think that homes are always outside the reach of creditors for credit card or unsecured loan debts.  Homes are often protected from creditors, but the level of protection and amount protected varies from state to state. It may depend on who is on the deed and /or who is on the debt(s).

While some states have large homestead exemptions, many others limit the exemption amount to an extremely modest sum. The North Carolina bankruptcy home exemption protection is $35,000.00 as of December 1, 2009.

Bankruptcy Law Network Past President Jay Fleischman was quoted in WSJ article:

“The debtor who loses his or her job and then seeks to file for bankruptcy is penalized if they are living off liquid savings,” says Jay S. Fleischman, an attorney and co-founder of the Bankruptcy Law Network. “I see many debtors who have liquidated their protected 401k assets in order to live, and find themselves in a difficult situation.”

Jay is referring to the debtor who had money in a protected 401k account who changed the funds to unprotected status by taking it out. Cash in an ordinary bank account is no longer protected.

I hate seeing the situation that where an individual uses scarce and valuable resources, like their retirement that was out of the reach of creditors, to pay credit cards that could have been discharged in bankruptcy. They still find themselves unable to get out of debt, without funds to live on, and no retirement for their future either.

Had they filed bankruptcy before taking the funds out, they may have still have that back up source of funds to live on or better yet, to use at retirement. Planing for bankruptcy is a good idea, even if you never think you will file since it may also protect your property outside of bankruptcy.

The article also mentions 529 college plans, which have some protection as well.

It is important to understand what you own that creditors can not touch, and what you have that is at risk. Since the laws are so different between the states, the best way to be sure that you know how you are affected is to have a consultation with an attorney in your state who can advise you on your particular exemption rights.

See also:

Unwritten exemptions benefit debtors By Cathy Moran, California Bankruptcy Lawyer

A House May Be Exempt In Bankruptcy, But You Don’t Get A Free House In Bankruptcy By Susanne Robicsek, North Carolina Bankruptcy Attorney

 

 

 

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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Last modified: June 4, 2012