[COLUMN] File bankruptcy without losing anything with proper exemption planning

A person who files bankruptcy does not automatically lose everything they have, contrary to what some people may believe. Because the concept behind bankruptcy is to give the honest debtor a fresh financial start, the law allows you to keep certain assets necessary to that end. Hence, you have “exemptions” available under the law that you can use to protect what you own.

When a bankruptcy petition is filed, all the assets owned by the debtor are listed on the petition. The debtor then gets to choose what they want to protect, or exempt based on what the law allows. Some of the available exemptions are limited in amount or value while others are unlimited. For example, if you own a home that you use as your primary residence, you are currently allowed to protect up to a little more than $600,000 of your equity if you live in Los Angeles County, provided that you have owned the residence for more than 1,215 days. The amount varies in each county, in some, the protected equity amount is lower.

Most Chapter 7 cases are no-asset cases. What this means is that the debtor does not lose anything because either (a) the allowable exemptions are sufficient to protect everything that the person has, or (b) the debtor has no assets of significant value at all that even though they cannot be exempted, selling the assets makes no sense as it will not yield anything of value to repay creditors. Retirement plans like 401(k) plans are not even considered bankruptcy assets and so it doesn’t even matter how much you have in your plan, you get to keep it all. IRA’s and other retirement plans are also frequently protected by law and are beyond the reach of the bankruptcy trustee. In 2005, the law was amended to exempt IRA’s up to $1 million. An experienced bankruptcy attorney can review all property and assets that you own and can determine whether filing Chapter 7 makes sense if there are assets that may not be protected at all. Where the amount of debt being discharged in the bankruptcy significantly exceeds the value of the asset that cannot be exempted, for example, in certain situations it may still make sense to proceed as you will still come out ahead and be debt-free.

Chapter 13 (as opposed to Chapter 7) does not involve selling or risking the loss of assets at all. Why? Because in Chapter 13, you are still trying to pay your creditors the best you can over a 3- to 5-year period. Thus, the focus in Chapter 13 is not to liquidate or sell assets for the benefit of creditors. Rather, the focus is on your current and future income and how much of it can be used every month to pay creditor claims. Depending on the amount of disposable income available, you may be required to pay zero to 100% of your unsecured debts (Unsecured is any debt with no collateral involved). Certain types of debts like taxes and back child support need to be paid 100% but there are only a few debts under this category. The most common type of debt that people have is credit card debt and in Chapter 13, they don’t necessarily have to be paid in full if you cannot afford to do so. If you own a home and are behind in your mortgage payments and property taxes, Chapter 13 can also stop foreclosure and allow you to save your home while paying back the arrears under a court-supervised repayment plan.

If you need bankruptcy relief but are scared of filing due to the possibility of losing assets, don’t assume anything until you speak with a bankruptcy attorney who can advise you of your legal rights. For a free attorney consultation, call Toll-Free 1-866-477-7772.

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None of the information herein is intended to give legal advice for any specific situation.  Atty. Ray Bulaon has successfully helped over 6,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE  1-866-477-7772.

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