Friday, August 8th, 2008
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.
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Monday, July 21st, 2008
Your initial bankruptcy consultation
If you haven’t yet contacted a bankruptcy attorney to talk about your case, read our review of Legal Helpers, then you can fill out a simple 5 step online evaluation form and be contacted by a bankruptcy attorney in your local area to discuss your case for free. If you want to skip the review, you can go directly to the bankruptcy evaluation form.
This initial consultation with your attorney is a very important step in your process of filing for bankruptcy, this is an opportunity to really understand the process and get a very good feel for what you can expect. You need to be well prepared for your initial bankruptcy consultation in order to get the most out of it. If you leave your attorney’s office still feeling doubtful about the whole process, then either you did not ask the right questions or your attorney failed to educate you and put you at ease about your doubts.
Bankruptcy consultations should be free, if you decide to contact local attorneys in your area and you find that they charge a consultation fee, just keep going down the list of numbers in the phone book. Many and perhaps most bankruptcy law firms offer free consultations.
How you can prepare for your bankruptcy consultation
More than likely you’ll get anywhere from 30 minutes to an hour to talk with your attorney, there will not be enough time to have a long conversation, so you need to prepare your questions carefully making sure that your questions are concise and direct. You should have no more than 5 questions for your attorney, the attorney will need the rest of the time to explain the process of filing bankruptcy and to run the means test, which will determine if you even qualify for bankruptcy and if you do, which bankruptcy chapter will fit your situation best.
Identify the key elements of your case and be sure to bring them up to your attorney during the consultation. These are situations like, if you’re married and prefer to file alone, if you’re in a divorce process or if you have been the victim of identity theft. Do you own a business? And is the business the reason for you needing to file? These situations may complicate your case so it’s important you bring them up now so that a better strategy can be planned for your bankruptcy petition paperwork.
You also need to make sure you express your intentions to your attorney as far as the outcome of the process. What do you really want out of this? Do you simply want to get your unsecured debts discharged? Do you want to keep your home or surrender it? It’s important that you bring this up, because often people get the wrong idea about filing bankruptcy and think that it’s the be all end all for discharging debt and that’s almost never going to be the case, since not all debts can be discharged.
As mentioned above, your attorney will more than likely want to run the bankruptcy means test to determine under which bankruptcy chapter your situation can be best handled, so you need to bring some information with you. You need to prepare this in advance, do not try to keep it all in your head.
Make a spreadsheet of all your debts and liabilities, this should include credit card bills, department store accounts, unsecured loans, car payments, tax bills, student loan payments etc. Then make a separate sheet for your living expenses. Your living expenses are things like your rent, utility bills, medical insurance premiums and life insurance premiums, food costs, clothing and other personal necessities that your family requires to live comfortably. Finally, you need a separate sheet that lists all your sources of income, to include disability benefits, social security, VA benefits etc and all your assets like stocks, bank accounts, retirement accounts etc.
Do not try to cheat by hiding anything here, you need to disclose everything accurately, for if you fail to do so your bankruptcy file may be found fraudulent and you could end up paying a fine and lose your right to file again. Bankruptcy law is specific and like any other law it makes no exceptions when mistakes are made, it’s easier for you to make a mistake if you file bankruptcy alone, whereas hiring a bankruptcy law firm or attorney will prove to be more effective, particularly when listing and designating your assets as either exempt or non-exempt.
How you should proceed after your consultation
After your initial consultation, your attorney will give you some paperwork to fill out should you decide to file with their firm. This paperwork will have questions which will ask you to describe in detail everything you listed in the spreadsheets you made about your debts, liabilities, expenses, income and assets. That’s why it’s important to prepare these spreadsheets in advance and keep them handy.
You also should take a day or two to think about what you just discussed with the attorney and if you don’t feel comfortable about the outlook of your case, you may want to consider consulting with a second attorney or even a third one. Bankruptcy attorneys are typically very good at what they do and know the law well, but often you’ll find attorneys who don’t really care about the stress you’re going through and do not take the time to offer any comfort or offer alternative solutions. Find one that can be more sympathetic and is genuinely interested in your case and of course one that can give you a free bankruptcy consultation, again you should never pay for a consultation.
if you’re married, discuss things with your spouse, even if you’re filing alone. Be absolutely sure that this is the right move and if you have not yet considered any alternatives to bankruptcy then you might want to read through the post on bankruptcy alternatives and it may just present some options that you had not thought of or thought were possible.
If other alternatives do not appear feasible, once you’ve decided to file your petition, start filling out your paperwork, and again, make sure that your information is accurate and you have not mistakenly or purposely entered the wrong information on these documents.
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Friday, June 27th, 2008
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.
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