You Don’t Lose Your Retirement Accounts in Bankruptcy

You made responsible choices and contributed to a retirement account, and now that nest egg has grown significantly.  Don’t worry about losing your retirement savings in bankruptcy, because it’s exempt.  Under North Carolina exemptions, all IRS qualified retirement accounts (employer pensions, 401(k)’s, Traditional IRA’s, Roth IRA, etc.) can’t be touched by the bankruptcy court.

If you are a state or municipal employee, those retirement benefits are exempt too.  This also applies to retirement accounts from the federal government, as well as other states and their municipalities.

If you haven’t filed bankruptcy yet, but are considering withdrawing from your retirement benefits to pay down debt, please call me first.  Many times this just delays the time before you end up filing bankruptcy, except now you’ve spent your retirement funds.  Funds you would have kept had you filed bankruptcy first.

Every dollar that you spend from an exempt source is a dollar that you could have otherwise kept after filing bankruptcy. The sooner you file bankruptcy, the sooner you will stop making payments on old debts that are keeping you from getting a fresh start.

I was sued for a debt, is it too late to file for bankruptcy relief?

I was sued on a credit card debt, I didn’t contest the lawsuit and the creditor obtained a judgment. Now they have judgment lien against my home. Is it too late to file for bankruptcy relief?

For most bankruptcy filers, the answer is “No!” But if you can, don’t wait until a creditor obtains a final judgment. The quicker you act, the better.

In North Carolina, if a judgment is obtained against you, it acts as a lien against any real estate you own. This is called a “judgment lien”. This can prevent you from selling your home without first paying off the judgment. If you don’t have equity in your home or available cash to pay off the judgment, the judgment lien can prevent you from being able to sell your home.  But, help is still available through bankruptcy relief.

The Bankruptcy Code allows debtors to remove judgment liens when there is no equity available in your home above and beyond your mortgage and exemption allowances. I can file an adversary proceeding in the bankruptcy case to “strip” the lien from your home. An adversary proceeding is like a mini-lawsuit within the bankruptcy. However, if an adversary proceeding must be filed, it can make the costs increase in your bankruptcy case.

If you’ve been sued over a debt, don’t wait.  Give me a call today so we can discuss you options and hopefully save you money in the long run.

Discharging Student Loan Debt Through Bankruptcy

The strain of student loan debt is felt by many these days as the nation’s student loan debt total exceeds a trillion dollars – more than the nation’s credit card debt. Many wonder whether student loans debt can be eliminated or reduced through bankruptcy.

Lenders typically have little risk of losing money on loans because Congress has given the lenders greater power than typically afforded to credit card or mortgage lenders.

But for the borrower, Congress has made is especially difficult to get rid of student loan debt if you are unable to pay. To discharge student loan debt in bankruptcy, the debtor must show that the student loans are causing the “undue hardship.”

For bankruptcy filers in Tennessee, the courts have held that to show undue hardship, the bankruptcy debtor must show:

  1. that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for one’s self and dependents if forced to repay the loans;
  2. that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. that the debtor has made good faith efforts to repay the loans.

If you are considering bankruptcy and you have a large amount of student loans, you should contact us to discuss your options. Even if you are unable to obtain a bankruptcy discharge of your student loans, often times the other benefits of discharging your other debts through bankruptcy will put you in a better position to repay your student loans.

What Can You Keep When You File Bankruptcy?

A common myth is that you lose all of your belongings when you file bankruptcy.  This is far from true. Your bankruptcy case can be structured so that you keep everything that you own by claiming various exemptions under North Carolina and federal laws.  Were it not for exemptions, a bankruptcy trustee would take your assets, sell them, and distribute the proceeds to your creditors.  However, bankruptcy law is designed so that you can keep a certain amount of your belongings.  The amount you can keep will depend on the category of each asset, although some categories have no dollar limits.  If you are married and filing a joint bankruptcy case, most of the dollar limits can be doubled.

If you have lived in North Carolina for the past two years, the following exemptions apply for your bankruptcy:

Earnings to Support Family – You can exempt an unlimited amount of wages you earned in the past 60 days, so long as those earnings are necessary to support your family.

Residence – You can exempt up to $35,000 in equity in your home.  This means that if your home is worth $135,000, but you have a mortgage payoff of $100,000, the remaining $35,000 cannot be touched by the bankruptcy trustee.  If you are married and filing a joint bankruptcy case, you can exempt up to $70,000.  If you are over 65 years old and unmarried, you can exempt $60,000 in value so long as the property was previously owned by you and someone that is deceased, and the property was owned jointly with rights of survivorship.

An important note for Western North Carolina bankruptcy filers is that the residence exemption applies to real property or personal property that you or your dependent uses as a residence.  “Real property” means land and a traditional stick-built home, modular, or trailer that has had the tongue and wheels removed.  Personal property used as a residence could be a trailer that still has its wheels or tongue, or even an RV.

The residence exemption also applies to you and your dependents. If you own a family compound, this means you can exempt the main house that you live in, plus the trailer that your kids or parents live in, so long as you support them like dependents.

Wildcard – If you do not use the full value of your residence exemption, you can exempt up to $5,000 of surplus residence exemption on any property that you want.  This means you can even exempt your fishing boat.

Vehicle – You can exempt up to $3,500 for one vehicle.  If you have multiple vehicles you may need to claim the second vehicle under the wildcard exemption.  If you are married filing a joint bankruptcy case, you can double the exemption, but only if the vehicle is titled in both names.  This means that if you and your spouse each own a vehicle and only one spouse is listed on each title, you can only exempt up to $3500 on each vehicle. But, if you are both listed on the titles, you could exempt $1,500 on one vehicle and up to $5,500 on a second vehicle.

Household Goods – You can exempt up to $5,000 in household goods, furnishing, wearing apparel, appliances, animals, crops, or musical instruments so long as it is used for personal or family use of you or your dependents.  If you have dependents, you can exempt $1,000 for each dependent, up to $4,000.

Tools of the Trade – You can exempt up to $2,000 for tools of the trade or professional books.

Life Insurance – You can exempt an unlimited amount of life insurance.

Health Aids – You can exempt an unlimited amount of professionally prescribed health aids.  This means if your doctor prescribed a mobility scooter, you can exempt the full value.

Personal Injury & Wrongful Death, & Disability Awards – You can exempt an unlimited amount of compensation received as part of a personal injury, wrongful death or disability award.  Hurt in a car wreck – you can keep your settlement for personal injuries.  Are you on maternity leave and receiving short-term disability payments – you can keep that too.  All of it.

Retirement Accounts – If your retirement account or plan is a qualified plan under IRS rules, you can exempt an unlimited amount.  This includes IRA’s, 401k’s and defined benefit plans.

College Savings Plan – You can exempt up to $25,000 in a college savings plan, excluding any amounts deposited in the last 12 months.  The plan must be for your child.

Social Security – All of your funds traceable to your social security retirement or disability is 100% exempt.

There are a few more categories, but those are the ones most commonly used.  If you are otherwise eligible to file for Chapter 7 bankruptcy, you should be able to keep all of your property.  The big exception is if you are facing foreclosure or repossession.

If your property exceeds your exemptions, you still have options such as Chapter 13 bankruptcy.  Schedule an appointment with me so you can figure out what will work best for you.