Bankruptcy Law

How Are Assets & Financial Accounts Protected in Bankruptcy?

When filing for bankruptcy, a common concern individuals have is how bankruptcy will affect their assets. If you are filing for Chapter 7 bankruptcy in Florida, you can use Florida bankruptcy exemptions to protect your property.  In addition, residents are provided unlimited exemptions for homestead, annuities, and the cash surrender value of a life insurance policy.

Florida has one of the most generous homestead exemptions in the country. To use these exemptions, you must have resided in Florida for at least 730 days before filing your bankruptcy petition. To claim the full value of the homestead exemption in Florida, you must have owned the property for at least 1,215 days before the bankruptcy filing.

Many people are misled to believe that bankruptcy can only make problems worse by causing them to lose their home, vehicle or their ability to ever take out credit, again. This could not be further from the truth.

In fact, those filing for Chapter 7 or Chapter 13 can keep almost everything.  Depending on your specific case, Florida bankruptcy laws allow you to keep the following:

  • Homes
  • Cars
  • Retirement accounts
  • Pensions
  • Wages
  • Personal property
  • Savings
  • Veteran’s or Worker’s Comp. Benefits

Type of Bankruptcy Filed

One deciding factor lies in what type of bankruptcy is being filed. Under a Chapter 7 bankruptcy case, the filer turns over assets that are not otherwise protected under Florida’s bankruptcy exemptions to the court where they are liquidated and used to pay off that person’s creditors. Depending on what falls under Florida bankruptcy exemptions, if the filer has a great deal of assets, this bankruptcy may not be ideal. With a Chapter 13 bankruptcy, the filer’s assets are not liquidated. Instead, an affordable repayment plan is prepared by the court allowing the consumer to pay down his or her debts over three to five years.

Bank Accounts

In a Chapter 7 bankruptcy case, the average filer’s bank accounts are not affected. The exceptions to this, include:

  • When the filer’s bank or credit union account balances exceed the allowed exemption amount;
  • When the filer owes money to the bank or credit union where the funds are deposited;
  • When specific institutions implement policies to freeze the bank accounts.

The protections of the bankruptcy automatic stay, which go into effect immediately upon filing for bankruptcy halt any collection activity, garnishment, and lawsuits against you.

401(k) Accounts

If the filer has money in a 401(k) account through his or her employer, this money is considered safe for the most part. Under Florida bankruptcy law, a filer’s retirement accounts are protected so long as the 401(k) plan is qualified under the Employee Retirement Income Security Act (ERISA). Under 11 U.S.C. Section 522; Fla. Stat. Ann. § 222.21, ERISA qualified retirement plans are fully exempt, including 401(k)’s, 403(b)’s, profit sharing and money purchase plans. However, make sure the account is ERISA protected before making any assumptions.

Traditional or Roth IRA Plans

If the filer has an IRA, including a Roth IRA, this type of plan is treated differently than a 401(k) that is ERISA protected, meaning these accounts are more vulnerable in a Chapter 7 bankruptcy case. Further, any funds that are withdrawn from a retirement account are not considered protected in a Chapter 7 bankruptcy case and are considered fair game for creditors.

Other Retirement or Pension Benefits

Other financial accounts are protected under Florida bankruptcy law, including public employee retirement benefits, municipal police pensions, and firefighter pensions. Teacher retirement pensions, as well as state and county retirement benefits, are similarly protected under Florida bankruptcy exemptions.

Annuity Income

If the filer receives money through an annuity, the rules are a little different. If the annuity was funded through an ERISA-protected IRA or other qualifying account, the filer should be able to exempt up to $1,362,800 of its value, up until 2022 when it is subject to change. If the annuity is also tied to a condition of illness, disability or length of service, the money from the annuity may also be exempt. Because annuities tend to be a little more complicated, it is recommended you consult with a bankruptcy attorney regarding protecting annuity funds.

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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.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.

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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.