Protecting Your Money and Assets During Bankruptcy
While it is important to fully disclose all of your assets to the court in the event of a bankruptcy, bankruptcy laws are now designed to help individuals protect some of their assets. In some cases, you may be able to keep the property, regardless of its value. Even people who owe significant debts may be allowed to keep their home, equity in a vehicle, and many of their personal belongings, as determined by the bankruptcy court.
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Instructions
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Seek the advice of an attorney in regard to state laws covering exempt assets in a Chapter 7 bankruptcy. An exempt asset is an asset that a creditor may not touch. If you are entitled to an exemption under the Bankruptcy Code, a creditor who has obtained a lien on your property may be prevented from seizing your property and selling it to satisfy the debt.
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File a Chapter 13 bankruptcy petition, which will allow you to bring any mortgage and/or auto loans current, thus avoiding foreclosure and repossession. Under Chapter 13, individuals file a repayment plan with the bankruptcy court that will allow them to repay their debts rather than liquidating their assets.
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Talk to an accountant about how you can protect retirement savings. Annual contributions made to an IRA or other pension plan may be considered as exemptions under federal standards for bankruptcy. Current legislation excludes tax-qualified retirement funds from federal bankruptcy cases. However, under state law, which varies, individually owned IRAs may not be considered as an exempt asset.
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Contact the credit card companies for any credit cards that you hold. If a card has a zero balance at the time that you file your bankruptcy petition, it will not have to be included. You may also be able to keep your account for any cards, which still have an outstanding balance. Talk to your creditors about a repayment plan to repay all or part of the debt as of the time that you file for bankruptcy. You may be able to work out an agreement between you. However, the bankruptcy court must approve the agreement before it can take effect.
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Consider the option of having an attorney draft a Limited Partnership Agreement. Bear in mind, though, that the partnership must be established before any serious financial problems and the thought of bankruptcy arise. Such agreements typically are set up to protect assets in many different situations, and not for the sole purpose of protecting assets in the event of a bankruptcy. If not drafted well in advance of filing a bankruptcy petition, such an agreement might be construed as an attempt to defraud creditors. Most people who set up limited partnership agreements do not foresee bankruptcy, but sometimes it can happen.
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Purchase additional life insurance. Depending on a policy owner's state of residence, the cash surrender value of an insurance policy may not be protected under bankruptcy exemption laws, although, in many cases, all or at least part of the cash value of a life insurance policy will be exempted. Many states now require that the owner of the policy be the insured. Again, the best time to plan such strategies to protect your assets is before financial problems unexpectedly occur.
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Tips & Warnings
Family Limited Partnerships offer the advantages of protecting a family's assets from creditors, as well as reducing income and estate taxes, providing liability protection to limited partners, protecting assets in a divorce, and ensuring continued family ownership of a business.
When it comes to bankruptcy law, each state has its own rules governing the amount and types of assets, which can be exempted.
