Consumer Bankruptcy

Fear Holds Many People Back from Ever Filing Bankruptcy

There are many people who can benefit from bankruptcy, but put off filing due to fear and the myths surrounding bankruptcy. Bankruptcy offers consumers a fresh financial start and relief from the burden of debt, but for many, it is the fear of the unknown that holds them back from ever taking the first step. Every year, only a small portion of consumers who could benefit from bankruptcy actually move forward with starting a case.

According to the Federal Reserve Bank of New York, approximately 14 percent (14%) of U.S. households or nearly 17 million consumers owe more than they own. While most of these individuals could benefit from bankruptcy, less than one percent (1%) of them file for bankruptcy annually. In 2020, there were only 752,160 personal bankruptcies filed. 

Bankruptcy Law

Understanding the Difference Between Exempt and Non-Exempt Property in Chapter 7 Bankruptcy

Before filing for bankruptcy, many people fear losing their property during the process. Federal bankruptcy laws, as well as Florida bankruptcy laws, allow for certain property to be protected under what are known as bankruptcy exemptions. However, not all property is protected, and it is important for filers to be aware of the difference between exempt and non-exempt property in a bankruptcy case.  

When filing for Chapter 7 bankruptcy, the filer should expect for a significant portion of his or her property to be turned over to the court as part of the “bankruptcy estate.” The bankruptcy trustee will sell this non-exempt property to pay off the debtor’s creditors before a bankruptcy discharge is granted. 

Bankruptcy Law

What is a ‘No Asset’ Chapter 7 Bankruptcy Case?

In a no-asset Chapter 7 bankruptcy case, the person filing for bankruptcy keeps all of their property because it falls within the exemptions provided under federal law or the law in their state.

With a Chapter 7 liquidation bankruptcy, a filer surrenders their assets to the bankruptcy estate, which uses them to pay off creditors. But in reality, this is only true of non-exempt property. Many of our cases, are in fact, ‘no asset’ cases. Bankruptcy law recognizes that filers need to retain some property so they can survive the process with something on which to build a future after bankruptcy.

Bankruptcy Law

Tips to Keep in Mind Before Filing for Bankruptcy in Florida

Many people view bankruptcy as this great unknown and truly do not understand the process before filing. However, it helps to understand what is involved when filing for bankruptcy and what to expect during the process.

What Is Bankruptcy?

Bankruptcy is a legal proceeding that basically provides the filer a fresh financial start. While it does involve putting the filer’s financial situation in the hands of the bankruptcy court and bankruptcy trustee, it can give the person a chance to breathe and get back on his or her feet. Bankruptcy will put all collection proceedings and foreclosure cases at a stop through the automatic stay and will also stop creditors from continuing to contact the consumer.

Bankruptcy Law, Debt Relief

How Small Business Owners Can Protect Assets in Bankruptcy

Many business owners worry about what will happen to their companies and their business assets when facing bankruptcy or a lawsuit. It is important for any business owner that he or she creates an asset protection plan for these exact types of situations.

The first step is to develop a debt management plan for the business. Having debt is not always a bad thing. The key is to manage the debt in an intelligent manner to stay out of trouble.  Business loans will usually involve offering business assets as collateral, which means that if the business owner ends up defaulting on the loan, the lender can seize the collateral to pay the debt. Some lenders will require borrowers to sign a personal guarantee if the collateral is not enough to cover the debt.

Bankruptcy Law

Converting a Chapter 13 Bankruptcy to a Chapter 7

On occasion, a Chapter 13 bankruptcy case may need to be converted to a Chapter 7 case. This transition may be on the request of the individual filer or the bankruptcy court. Many bankruptcy filers will decide to convert their Chapter 13 case into a Chapter 7 case in the event their financial situations have changed after the initial filing, or if the filer had originally chosen to pursue a Chapter 13 case to protect property that no longer needs protection.

The Conversion Process

Florida bankruptcy courts have specific guidelines that must be followed for converting a case from Chapter 13 to Chapter 7.  Unless the filer has already received a Chapter 7 bankruptcy discharge within the most recent eight years, he or she should be able to convert a Chapter 13 case into a Chapter 7 at any time.

Bankruptcy Law, Timothy Kingcade Posts

How Will Filing for Bankruptcy Affect My Children?

It is a common concern of parents filing for bankruptcy.  In this blog, we will address common bankruptcy concerns involving children, including: What happens to children’s bank accounts and 529 educational savings accounts in bankruptcy? Will I be able to take out student loans for my child after filing for bankruptcy? Will my child lose property? What happens to child support obligations in bankruptcy?

Your Child’s Property

Technically, any property in your home is yours and not your child’s. This includes your child’s furniture, toys and clothing, even though they may have been gifted directly to the child. If the child paid for a piece of property from his or her own money and this fact can be proven, the property is the child’s exclusively.

The good news is this property is an expemption, allowing it to be protected in the bankruptcy. If the filer is proceeding with a Chapter 13 bankruptcy case, the bankruptcy filer will get to keep all personal property. In a Chapter 7 bankruptcy case, the filer can keep up to $1,000 in personal property under Florida’s bankruptcy exemptions, which includes household furnishings and clothing. If the amount exceeds the $1,000 limit, the bankruptcy trustee will normally not look to sell this property to pay off debts unless the property is extremely valuable.

Bank Accounts

Many parents open up bank accounts and hold them in trust for their children. The good news is these accounts are protected in bankruptcy. Under the Uniform Gifts to Minors Act, money in a child’s bank account is not considered your money, meaning you, as the parent, are holding this money in trust for your child. Therefore, neither the bankruptcy trustee nor the creditors will be able to access this money. However, filers should be cautious when transferring large amount of money into the child’s account right before filing for bankruptcy.

529 College Accounts

Many parents also put money away into education savings accounts under section 529 of the Internal Revenue Code (IRC) to help give their children a head start in saving for college. This section of the IRC also offers tax advantages, as well as creditor protection, which is another reason why so many parents take advantage of it. The federal bankruptcy code specifically excludes 529 funds from being lumped as part of the bankruptcy estate. However, for this money to be protected, the beneficiary must be the filer’s child, stepchild, grandchild or step-grandchild. Also, the court will look at the timing of when deposits were made into the account. Deposits that are made within 365 days before filing for bankruptcy are not protected. If a deposit is made anywhere between 365 and 720 days before filing for bankruptcy, the filer can exempt up to $6,225 per beneficiary. Anything that was deposited more than 720 days before filing for bankruptcy is exempt and protected from bankruptcy creditors.

Financial Aid

Another piece of good news is the fact that filing for bankruptcy will not hurt your child’s ability to qualify for financial aid for college, including Pell Grants and Stafford Loans. The parent, however, will be disqualified from receiving any credit-based financial aid, including a Parental Loan for Undergraduate Students (PLUS) loan if the parent declared bankruptcy within the past five years. If that does happen, the filer’s child will qualify for an increased amount of unsubsidized Stafford loans.

Child Support Payments

One important fact to know about child support and bankruptcy is that child support obligations are non-dischargeable in a bankruptcy case. Therefore, if the filer owes a large amount in back child support, this debt is considered priority debt and is paid first from the liquidated assets in a bankruptcy case. Child support payments must also be paid during a Chapter 13 bankruptcy repayment plan. In fact, a bankruptcy court will not grant a discharge in a Chapter 13 case if the person is not current on his or her post-filing child support payments. Child support income is also protected in a bankruptcy case, if the filer is the parent receiving the child support, since that money is meant for the support and well-being of the child.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources:

https://www.thebankruptcysite.org/resources/bankruptcy/filing-bankruptcy/how-does-filing-personal-bankruptcy-affect-my-children

https://www.nolo.com/legal-encyclopedia/florida-bankruptcy-exemptions-property-assets-bankruptcy.html

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

One in Four Millennials Depleting Their 401(k)s to Pay Down Debt

According to a new report released by Merrill Lynch and Age Wave, one in four consumers under the age of 34 have made the decision to take money out of their retirement accounts to try and get out of debt. Of the reasons reported for why these individuals took money out of their retirement accounts was to pay down student loan debt or credit card debt.

This is a critical mistake and one that comes with a 10 percent tax penalty, not to mention more long-term consequences. Since any money that goes into a 401(k) account is from pre-tax dollars, the IRS taxes money taken from a 401(k) at a higher rate than normal income.

Not only will a person be paying a higher amount in taxes on money taken from a 401(k), but they will also be jeopardizing their retirement and borrowing against their future wealth.  The goal of retiring can seem far off for millennials, but the earlier you plan and save for retirement the better.

The fact that younger consumers feel they have no choice but to reach into their retirement savings comes as no surprise, especially considering the fact that many of these individuals carry a significant amount of credit card and student loan debt. This is before some of them even apply for their first job.

It is estimated that Americans hold a total of $1.6 trillion in student loan debt. The average undergraduate student graduates with approximately $37,000 in student loan debt, according to the Merrill Lynch study. On top of that, these individuals also are carrying an average of $3,700 credit card debt. However, despite this fact, financial experts do not advise using retirement savings to pay off debt.

It is important that consumers be aware of the fact that money in 401(k) accounts is protected in bankruptcy. In fact, social security, 401(k)’s and pensions  worth up to $1.245 million are all exempt from creditors during bankruptcy. This means that retirement income and savings are out of reach and protected under federal law. A Chapter 7 bankruptcy allows you to hold onto all of your retirement savings and keep every penny of your 401(k).

However, this is only the case if the money remains in your 401(k) retirement account.  Removing funds from the 401(k) or any retirement account before filing for bankruptcy turns the funds from a protected asset to an unprotected asset.

If the amount of debt you are struggling to pay is so unmanageable that you are considering filing for bankruptcy, it is important to remember that retirement savings are protected under Florida’s bankruptcy exemptions. It is important to speak with an attorney, especially if you have recently lost your job and have considered pulling from your retirement savings to help pay for day-to-day living expenses.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resource:

https://www.cbsnews.com/news/one-in-four-millennials-with-401ks-are-raiding-retirement-savings-early-to-pay-down-debt/

 

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

Protecting Bank Accounts During Bankruptcy with Pre-Bankruptcy Planning

One of the most important assets someone going through a bankruptcy case wants to protect, aside from retirement accounts or their home, are their bank accounts. After all, no one wants to lose all the cash they have available to pay for daily expenses. How money in a bank account can be protected depends heavily, however, on the type of bankruptcy exemptions used and what planning was done pre-bankruptcy to protect that money.

One of the benefits of filing for bankruptcy involves the automatic stay, a measure that goes into effect as soon as the bankruptcy case is filed. This automatic stay puts a halt to any collection proceedings or efforts, giving the filer reprieve from the continuous calls and communications from creditors seeking to receive payment on their debts.

Are the Funds Exempt?

In any bankruptcy case, certain property is protected from being liquidated and used to pay off qualifying debts. This practice is done through bankruptcy exemptions. In a Chapter 7 bankruptcy case, the bankruptcy trustee cannot take this exempt property to pay off debts. While the bank account itself is not necessarily exempt, the money in that account could be protected if it qualifies under one of Florida’s bankruptcy exemptions. After all, Florida has quite generous bankruptcy exemptions, when compared to other states.

If you own a home, you will likely find Florida’s bankruptcy exemptions quite favorable. You can exempt all the equity in a residential property that meets Florida’s guidelines. In addition, Florida has unlimited exemptions for annuities and the cash surrender value of a life insurance policy.

Money in the account that is from wages from the head of family is exempt up to $750 per week or the greater of 75 percent or 30 times the federal minimum wage. Under Florida Statute §222.11, this money includes paid or unpaid wages during the last six months. Additionally, any money that is income for a person other than the head of family is also protected up to 75 percent or 30 times the federal minimum wage, whichever is the greatest of the two. Additionally, if you are a federal government employee, pension payments that are needed for support and were received for up to three months before the bankruptcy filing are exempt.

Pre-Bankruptcy Planning

If any funds are not otherwise covered by a bankruptcy exemption, they could be protected through pre-bankruptcy planning. However, this planning must be done with caution and properly so a bankruptcy attorney should be consulted before any actions are taken. Bankruptcy laws allow you to take property that would not be exempt and convert it into exempt property, so long as you are acting in “good faith.” The key here is to act in good faith. Bankruptcy filers who conceal or hide their assets in hopes of fooling the bankruptcy court, will result in the case being thrown out due to bankruptcy fraud. It is for this reason that you should proceed with caution when doing any pre-bankruptcy planning.

One possible method of converting nonexempt cash into an exempt asset before filing is to pay your mortgage down, especially considering Florida’s generous homestead exemption. You may also make an annual contribution to your retirement account or other retirement funds with any nonexempt cash to ensure that it goes to an asset that is protected. Money can also be used to pay down debts that would not be discharged in bankruptcy, including child support, spousal support, taxes, and student loan debt.  Ensure your balance is low by using your funds to pay necessary bills before you file.

If you use any money that would be nonexempt to buy assets that would be considered luxury items or unnecessary or extravagant expenses, you could face civil and criminal penalties for your actions. The bankruptcy court will look carefully at whether you misrepresented your asset values, whether the investment or property purchased was worth less than the money you used to purchase it, whether the assets were given to a family member or friend with whom you have a close relationship, and whether your lifestyle radically changed as a result of the purchase.

When filing for bankruptcy, you will be required to disclose all asset transfers made outside of the ordinary course of business within 90 days before filing the petition. Any transfers made to a friend or relative within one year of filing must also be disclosed.

Please click here to read more.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Source:

https://www.nolo.com/legal-encyclopedia/florida-bankruptcy-exemptions-property-assets-bankruptcy.html

Bankruptcy Law, Debt Relief, Timothy Kingcade Posts

Why You Should Never Use Your 401(k) to Pay Down Debt

When someone is facing a large amount of debt, it can be tempting to want to use all available resources to pay off that debt. Even if it means taking money out of retirement accounts. However, this could end up costing more than anticipated, delay retirement- and oftentimes the inevitable.

If bankruptcy is in your foreseeable future, the last thing you want to do is use assets that would otherwise be protected in bankruptcy to pay off debts that could be discharged in the bankruptcy case. Unsecured debt, such as credit card debt, personal loans and medical bills, end up being discharged at the end of a bankruptcy case, so it would not be worthwhile to use retirement savings to pay off these debts only to file for bankruptcy later.

Funds in your 401(k) are protected by federal bankruptcy law. While many assets can be used to pay off debts, retirement account funds are protected and cannot be touched under the Employee Retirement Income Security Act (ERISA). This law sets minimum protection standards for anyone who voluntarily contributes to a retirement account in the private sector. Florida also allows for exemptions for IRA accounts in bankruptcy.

The problem is many individuals try to avoid bankruptcy at all costs, and they see using assets, such as retirement savings, as an easy way to pay off debt.  But this does not come without consequences. Taking money out of retirement accounts too early can have some negative tax implications. If you take money from a retirement account and are under the age of 59 ½, you can incur some tax penalties as a result, including a 10 percent early withdrawal penalty. Money should never be taken prematurely from your retirement accounts without first consulting a financial advisor and accountant.

If you are struggling to pay off debt, including credit cards, medical bills or personal loans, you should consult with an experienced bankruptcy attorney to discuss the real possibility that bankruptcy may be the best option for you. It is recommended that you consult these professionals before taking the money out of retirement accounts. We have filed bankruptcy petitions for clients with more in their retirement accounts than on their credit card statement. A Chapter 7 bankruptcy allows you to hold onto all of your retirement savings and keep every penny of your 401(k).

However, this is only the case if the money remains in your 401(k) retirement account.  Removing funds from the 401(k) or any retirement account before filing for bankruptcy turns the funds from a protected asset to an unprotected asset.  It is important to speak with an attorney, especially if you have recently lost your job and have considered pulling from your retirement savings to help pay for day-to-day living expenses.

Click here to read more.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.