Exempt vs non-exempt assets

One of the most common doubts for bankruptcy filers is in determining what assets are exempt when filing bankruptcy, this is not always clear especially if there are versified assets involved. As always it is best to consult a bankruptcy attorney to determine this with precision, but this post should give you an idea.

Exempt assets are those that can not be included in the bankruptcy estate, for example your retirement account. 401K, IRA accounts and other retirement accounts are in most states exempt from liquidation, however some states do consider these types of assets non-exempt so it’s important that you check with your attorney to make sure that yours will be safe.

Non-exempt assets are those that will be included in the bankruptcy estate and you must surrender in order to process your bankruptcy discharge. The bankruptcy trustee will use these assets to liquidate them and use the cash proceedings to pay your creditors before any debt can be discharged.

The law currently states that $16,500 of your home’s equity is exempt or double that amount if you’re married. Also you may exempt up to $2,500 of your vehicles total value. Home items like your furniture, items in your wardrobe and home collectibles may be exempt up to a value that can be determined by your attorney since this also varies per state. Any health or medical aids that you need for treatment or life support that are of high value are also exempt.

Any personal injury compensation, and disability payments that you’re receiving may also be exempt depending on which state you’re in.

Other assets like pension plans in which employees contribute to ERISA qualified plans, or deferred compensation plans, health insurance plans and certain annuities can be considered bankruptcy exempt assets.

Education funds to your child’s college education, or state tuition programs that were started at least one year prior to filing for bankruptcy, can be excluded from the bankruptcy estate. These funds educational funds however must clearly have as a beneficiary a child or grandchild of the debtor.

Can I exempt my house entirely?

Typically no, but in today’s crashing real estate market it is difficult to find a home with a significant amount of equity worth liquidating for the bankruptcy trustee. So presently you may be able to keep your house if the trustee is not interested in selling it, but you must continue to pay the mortgage on it even after you get a discharge since this is a secured debt.

If there’s more equity in the home than the allowed exempt amount of $16,500 or double if you’re married, then it is likely that the trustee will move forward with including the property in the estate and sell it. However if the equity is below the allowed amount then you should be fine just make sure you pay the mortgage. Also remember that the lender is not interested in the house, they’d rather you got caught up on payments and will only proceed with foreclosure as a last resort since this is typically an expensive and time consuming effort for the lender.

Can I exempt my vehicle?

Vehicles normally depreciate in value rather quickly, so unless you own luxury or vintage vehicles that hold good value and are above the allowed exemption value of $2500, the trustee will also probably choose to overlook this asset. Most people own vehicles that they’re either leasing or still paying for and because of the depreciation value of most vehicles it is difficult to consider them in the bankruptcy estate as worthy assets. So if your vehicle is a couple of years old with moderate to high mileage you probably have little to worry about.

When can I exempt everything?

If you’re filing chapter 7, more than likely you won’t have to try too hard to exempt certain things you own since most people who file chapter 7 bankruptcy have already exhausted their own resources to get caught up and failed. Including selling some of those assets. In most cases there were never really any assets to begin with. This is why often chapter 7 bankruptcy cases are no-asset-cases, in which the largest if any assets at all are the individual retirement accounts the filers have through their employers. Even if there are assets that can be liquidated they’re often overlooked due to the exempt assets rules.

There will be cases in which the filer has a significant amount of non-exempt assets and there are legal ways of converting non-exempt assets into exempt assets, these circumstances are unique and this will not apply to everyone who has a lot of assets. This can only be done by a seasoned bankruptcy attorney so do not make any assumptions on your own, this can be very serious if it is determined that you tried to purposely defraud or hinder the proceedings. If this is the case for you, then take this very seriously and talk with a bankruptcy attorney because bankrutpcy excemptions are a very important part of the process and most people simply do not have the knowledge to do this correctly.

Even if you’re in no danger of filing for bankruptcy or find yourself in a financial struggle, you proabably often think and worry about your credit rating. This is obviously one of the most important aspects of you as a consumer, it lets creditors know who you are and what financial habits you have. If your credit rating is currently less than desirable I’d like to offer you a few tips on how to take control of your credit score.

Limit the number of credit cards you sign up for – Ideally each individual should have no more than 3 credit cards, this is engouh to get you started building some credit history. You should also never sign up for more than one credit card at a time. Each time you submit an application, your credit is queried and this normally is ok once, but if you have several creditors querying your credit for the same thing, you’ll likely lose precious points off the top. More credit cards can be added later, but I would recommend that overall you have no more than 5 credit cards total.

Always pay more than the minimum – Paying on time is only part of your FICO score, your overall score will take into account how well you’re able to reduce the total outstanding balance on your credit card. If you only pay the minimum on your bill, you will continually show a high balance that’s only creeping down slowly. Try alternating the increase on payments each month, so if you’re minimun payment averages $40 dollars, you can pay that $40 dollars this month and next month pay at least 50% more of the minimum payment. This will crearly show that you are able to eliminate your balances.

Don’t close credit accounts you don’t use – I used to think this was a good idea, but it turns out that you really are deleting good history from your credit report, especially if these are accounts you’ve had for some time. It’s important that you show that you have been managing your own credit for some time, this experience counts. Also, and most importantly, if you close an account you’re eliminating available credit, you could potentially borrow from this account and this is taken into account as well in determining your overall FICO score. However, it’s also important that you keep in mind that there’s an even more important factor to this formula and that is to keep a ratio of no more than 30% of that available credit in use.

Nevermind those department store credit cards – Don’t bother with these, sure they entice you with a 10% discount, but this is another oppotunity for you to amount debt that must be paid back at a high interest rate no matter what your credit score is. Not only that but you will get another hit on your credit, which will take more points off your current FICO score. You may say to yourself “I won’t use it” I just want the 10% discount, but the damage is done once you turn the application in. Your credit will be queried and you will lose points; all so you can save 10%. It’s just not worth it.

Do not lend your credit! – I probably should have put this on top. I have also mentioned this point through other posts on this blog. Your credit should be like your underwear, you just don’t let others borrow it. There are so many dangers in doing this, you have to realize that you’re putting yourself on the line when you co-sign for credit card applications or major purchases like an auto mobile or anything else that requires someone else to bring a co-signer. Chances are, they don’t qualify for the credit on their own because they were not responsible with their own credit. There are times of course, when there are exceptions to this rule, and that is when you’re dealing with family members. Obviously it’s tough to turn your back on your family when they’re in need, by all means lend a hand just make sure they understand that you are taking on a risk that can affect your LIFE. They must understant this clearly.

News networks across the country have given considerable attention to the unprecedented number of bankruptcy filings throughout the nation. Once sprawling communities like Orange County California have some of the largest numbers of bankruptcy filings per capita. The real estate market in this area as in many parts of the country has come to a complete stop. No new development is taking place and the local economic outlook in Southern California as a whole is not improving mostly due to the price per gallon of gasoline, which is one of the highest in the country.

Souther California is one of the hardest hit regions in the country for personal bankruptcy filings, this is highly credited to the over valuation of real estate property during 2001 through 2005 and the sub-prime loans that funded the majority of these properties. The number of people filing for personal bankruptcy, compared to last year are up 90% for LA county, 125% for Riverside county and a staggering 150% for Orange County.

The state of Colorado has seen a rise of 35% since last year, and again it is home owners with high interest mortgage loans that make up over 60% of the bankruptcy cases.

Things are due to get worse according to economic experts, who predict no relief will be seen until two to three years from now. Because gas prices are gradually increasing each day, the cost of commodities and other consumer products have kept up with the price, adding further strain on the already heavily burdened communities of consumers across the country.

Overall the entire country is currently seeing a rise of 50% since last year. It is expected that by the end of 2008, we will see a total number of over one million personal bankruptcy cases which will continue throughout 2009.

Our economy is susceptible to many different factors, including external factors like the overall world economy. A contributor to the price of oil is none other than China. The country has emerged economically demanding more gas, food and quality of life. The once low waged workers are currently climbing the ladders economically and this new demand is now plugged to the main line of distribution for commodities like oil, wheat, and sugar.

It doesn’t matter how much money exists in any one region, it is the demand for these goods that drives up inflation.

So the economic state of the US, which is already affected by the real estate melt down, can expect to see higher prices for commodities and further escapes from debts through bankruptcy filings. Again no solid plan is in place to overcome this, any plan brought forth by the political parties are nothing more than pandering attempts.

Save what you can and invest in hard assets, paper assets will be worthless soon.

This footage is a few months old, but it has such a great message about the future of the economy that I felt it needed to be viewed again. Our economy is in serious trouble and my goal for the next few months is to dig out every bit of footage where politicians are willing to speak up and bring to the table their own opinions on where they believe the economy is and where it is going. This is the best source of information when our own politicians are willing to express their thoughts openly about these issues.

One of the issues that’s mentioned in this video is our currency. The Dollars has been on its longest steady decline in decades and it shows no signs of stopping. Our currency is based on nothing, and it is losing the trust it once portrayed so well. There are a lot of fallacies in the handling of our money, starting with a common belief and false confidence that our currency is backed by gold. This is simply not true.

Our national debt is not repayable, that check will bounce. This is the message I get from listening to Congressman Ron Paul and it is very unsettling to think about it because it is always growing, yet we continue to print money that’s already completely debased.

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A lot of us have been there, we never really thought about the consequences of accumulating credit card debt so early in life. As I mentioned before in the “Things you should never do with money” articles, we as consumers have a tough time rationalizing the necessity of some of the purchases we make. We tend to negotiate with ourselves and are somehow able to turn our wants into needs.

College students don’t have a lot to spend or live on, yet somehow they’re able to get high limit credit cards and this is when it all begins to go wrong for many of them. Even at this educational level student do not have the necessary money skills and often end up spending more than necessary. Student loans normally cover tuition and living expenses but that’s not all that college students need to finance. Money in college is scarce and it’s one of the most important resources to a college student’s social life.

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