Category Archives: Exemptions

Protecting Your Retirement Accounts in Bankruptcy: What You Need to Know

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If you’re considering bankruptcy, one of the major concerns is likely what will happen to your retirement accounts, such as 401(k) or IRA. While it’s understandable to be worried, it’s important to understand how bankruptcy laws treat retirement accounts.

First, it’s essential to know that retirement accounts are typically protected in bankruptcy. The Bankruptcy Code exempts certain retirement accounts from the bankruptcy estate, meaning they cannot be seized to pay off debts. This exemption applies to both Chapter 7 and Chapter 13 bankruptcies.

The exemption covers most types of retirement accounts, including 401(k)s, IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. The exemption amount is unlimited for traditional and Roth IRAs, while the limit for 401(k)s and other types of plans is currently over $1 million.

However, it’s important to note that the exemption only applies to funds that are genuinely retirement savings, not to regular checking or savings accounts that a person designates as being for retirement. It’s also essential to keep in mind that bankruptcy laws and exemptions vary by state. While the federal exemptions apply in most cases, some states have their own exemptions that could impact the protection of retirement accounts.

Moreover, while retirement accounts are usually protected in bankruptcy, taking money out of retirement accounts to pay off debts before filing for bankruptcy may not be the best solution. Doing so could result in penalties and taxes that may have been avoidable if the funds were left in the retirement account and protected through bankruptcy.

In conclusion, retirement accounts are usually protected in bankruptcy, meaning they cannot be seized to pay off debts. However, it’s crucial to ensure that contributions made within a year before filing are not included, and state laws may impact the level of protection. It’s always best to work with an experienced bankruptcy attorney to understand how bankruptcy laws and exemptions apply to your specific situation and how to protect your retirement accounts during bankruptcy.

Schedule a free telephone appointment to discuss your unique debt situation with attorney Jennifer Weil at my Setmore page.

Understanding Bankruptcy Exemptions in New Jersey: Federal and State Options

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Bankruptcy is a tough process, but it can offer a fresh start to those struggling with debt. To make an informed decision, it’s crucial to understand the laws and regulations surrounding bankruptcy, including exemptions under the U.S. Bankruptcy Code. In New Jersey, individuals can choose from federal and state exemptions when filing for bankruptcy.

Federal exemptions protect specific property, such as a homestead exemption for primary residence equity. Personal property like household items, clothing, jewelry, and retirement accounts, as well as certain insurance policies, are also eligible for exemptions.

In New Jersey, individuals can choose between state or federal exemptions. State exemptions in New Jersey are not as generous as we would prefer, so many bankruptcy attorneys use the federal bankruptcy exemptions. Other states have more generous exemptions for certain items, such as the homestead exemption for primary residence equity and exemptions for personal property like household goods, clothing, and specific vehicles.

It’s important to remember that exemptions may not cover all assets and property, and some debts may not be dischargeable in bankruptcy. It’s crucial to work with an experienced bankruptcy attorney to understand the specific exemptions available in New Jersey and how they apply to the individual’s situation.

Furthermore, it’s important to understand the potential consequences of bankruptcy, such as the impact on credit scores and the possibility of losing assets. Nevertheless, for those dealing with overwhelming debt, bankruptcy can provide a path to financial stability and a fresh start.

To conclude, understanding exemptions under the U.S. Bankruptcy Code is a critical aspect of the bankruptcy process. New Jersey offers both federal and state exemptions, but it’s essential to work with a skilled bankruptcy attorney to determine the best course of action for the individual’s specific circumstances. Although bankruptcy can have potential consequences, it can also pave the way for a brighter financial future.

Schedule a free telephone appointment to discuss your unique debt situation with attorney Jennifer Weil at my Setmore page.

Should You Use Your 401(k) to Pay Off Credit Card Debt? The Truth About Retirement Savings and Debt Relief

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Are you considering using your 401(k) to pay off credit card debt? While some financial experts may suggest this as a solution, it is not always the best option. In many cases, using your retirement savings to pay off credit card debt can have negative consequences and end up depriving future you of the funds you will need for basic living expenses after retirement.

Is it a good idea to use your 401(k) to pay credit card debt?

Your 401(k) contains the money that you will need in order to live after retirement.

Instead, bankruptcy may be a better, cheaper solution for those who cannot afford to pay back their debts. In New Jersey, bankruptcy laws allow individuals to keep their 401(k) money untouched throughout the process. This means that, with the help of a bankruptcy attorney, you can achieve debt relief and protect your retirement savings at the same time.

It is important to carefully consider your financial situation and weigh the costs and benefits of each option before making a decision. Dipping into your 401(k) may seem like a quick fix, but it can have long-term consequences. Bankruptcy, on the other hand, is a solution proposed by Federal law for individuals who cannot afford to pay back their debts.

In conclusion, if you are struggling with credit card debt, it is best to consider bankruptcy as a solution before using your 401(k) to pay off your debts. With the help of a bankruptcy attorney, you can achieve debt relief, protect your retirement savings, and start fresh towards a financially stable future.

Not sure if bankruptcy is right for you? Well, it’s not right for everyone, but it’s a great solution for a lot of people. Schedule a free telephone appointment to discuss your unique debt situation with attorney Jennifer Weil at my Setmore page.

How To Kick Start The Bankruptcy Process

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(Note: This is an update of a post from 2010 that many people found useful in beginning the bankruptcy process.)

How do you kick start the bankruptcy process? Most people want to get their bankruptcy case done as quickly as possible. To start, your bankruptcy attorney will ask you for a list of documents and information. It would help move things along faster if you knew what to gather right away.

Here’s a list of items to gather for your bankruptcy attorney:

1. Your last 6 months’ worth of pay stubs or other proof of income;

2. The details of your last bankruptcy filing, if any, including the date, place, and chapter of filing and the case number;

3. Gather your last 3 to 6 months’ of bank statements from all accounts, including checking, savings, retirement, CDs, IRAs, investment accounts, money market accounts, etc.;

4. Get a copy of your TransUnion credit report from www.annualcreditreport.com;

5. Gather all the collection letters that you have received in the past few months;

6. Gather all the bills that you are behind in paying that do not show up on your credit report;

7. Gather basic information on these types of debt (if you still owe them, even if you’re current on payments): Student loans, back taxes, alimony, child support, criminal fines and restitution; debts resulting from fraud; and divorce or property settlement debt;

8. Gather information regarding any cash advances or balance transfers you had in the past few months;

9. Get a copy of last year’s tax return or tax transcript;

10. Gather information on all of your most valuable property;

11. If your last year’s tax filing is overdue, file that return so the amount you owe or the refund you are owed can be determined;

12. If you own real property, gather the deed and mortgage and home equity loan papers;

13. If you have a car, get the last lease or financing bill for that car, if you’re still paying on it;

14. If you have any secured debt, gather the papers relating to it;

15. Copy your picture ID and your Social Security card or other proof of your Social Security number;

Remember, disclosure is a key to a successful bankruptcy case. If you don’t disclose, you may not get all the exemptions to which you are entitled. Tell your bankruptcy lawyer everything about your financial situation, especially if you borrowed money from a relative.

If you are in New Jersey and considering bankruptcy, please call Jennifer Weil to schedule a free telephone consultation on my Setmore site or at 201-676-0722.

When Chapter 7s Are Not So Simple

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The goal of most Chapter 7 cases is to get in and get out—file the petition, go to a hearing with your attorney a month later, and two months after the hearing, your debts get written off. Mission accomplished, end of story. And usually that’s how it goes. What are some reasons that a Chapter 7 case doesn’t go that way?

Four main kinds of problems can happen:

Income

Under the “means test,” if you made or received too much money in the 6 full calendar months before your Chapter 7 case is filed, you can be disqualified from Chapter 7. As a result, you can be forced into a 3-to-5 year Chapter 13 case, or have your case be dismissed altogether. These results can be avoided by careful timing of your case filing, or by making changes to your income beforehand, or by a proactive filing under Chapter 13.

Assets

In Chapter 7, if you have an asset that is not “exempt” (protected), the Chapter 7 trustee will be entitled to take and sell that asset, and pay the proceeds to your creditors. You might be happy to surrender a particular asset you don’t need in return for the discharge of your debts, in particular if the trustee is going use the proceeds in part to pay a debt that you want paid, such as a child support arrearage or an income tax obligation. But you may not want to surrender that asset, either because you think it is worth less than the trustee thinks or because you believe it fits within an exemption. Or you may simply want to pay off the trustee for the privilege of keeping that asset. In all these “asset” scenarios, there are complications not present in an undisputed “no asset” case.

Creditor Challenges to Discharge of a Debt

Creditors have the limited right to raise objections to the discharge of their individual debts, on grounds such as fraud, misrepresentation, theft, intentional injury to person or property, and similar bad acts. In most circumstances, the creditor must raise such objections within about three months of the filing of your Chapter 7 case. So once that deadline passes you no longer need to worry about this, as long as that creditor got appropriate notice of your case.

Trustee Challenges to Discharge of Any Debts

If you do not disclose all your assets or fail to answer other questions accurately, either in writing or orally at the hearing with the trustee, or if you fail to cooperate with the trustee’s investigation of your financial circumstances, you could lose the ability to discharge any of your debts. The bankruptcy system relies on the honesty and accuracy of debtors. So the system is quite harsh toward those who abuse the system by trying to hide things.

To repeat: most of the time, Chapter 7s are straightforward. That’s especially true if you have been completely honest and thorough with your attorney during your meetings and through the information and documents you’ve provided. In Chapter 7 cases that I do for my clients, my job is to have those cases run smoothly. I do that by carefully reviewing my clients’ circumstances to make sure that there is nothing troublesome, and if there is, to address it in advance in the best way possible. That way we will have a smooth case, or at least my clients will know in advance the risks involved. So, be honest and thorough with your attorney, to increase the odds of having a simple Chapter 7 case.

Discuss your financial situation with bankruptcy attorney Jennifer N. Weil by scheduling a phone appointment at (201) 676-0722 or by emailing weilattorney@gmail.com.

Chapter 7 Bankruptcy After Closing Your Business – Factors to Consider

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Meta Description: Filing for Chapter 7 bankruptcy after shutting down your business may seem like the best option, but there are three key factors to consider: assets, taxes, and other non-dischargeable debts. Consult with a lawyer to determine what’s best for you.

Introduction:

Closing down a business can be a difficult and emotional experience. After all the hard work and effort put into making it successful, it can be tempting to file for Chapter 7 bankruptcy for a fresh start. However, it’s important to consider the consequences before making a decision. In this blog post, we will discuss three factors to consider when deciding whether Chapter 7 bankruptcy is the right choice for you after closing your business.

  1. Business Assets:

Chapter 7 bankruptcy is divided into two categories: “no asset” and “asset.” In a “no asset” case, the Chapter 7 trustee decides that none of your assets are worth taking and selling to pay creditors. On the other hand, if your recently closed business has assets that are not exempt and are worth the trustee’s effort to collect and liquidate, it’s important to discuss with a lawyer whether Chapter 7 is in your best interest compared to what would happen to those assets in a Chapter 13 case.

  1. Taxes:

Closed-business bankruptcy cases often involve tax debts. While some taxes can be discharged in a Chapter 7 case, most cannot. Chapter 13 is often a better way to deal with taxes as it will depend on the type of tax and a series of other factors such as the time the tax became due and whether a tax return was filed.

  1. Other Non-dischargeable Debts:

Closed-business bankruptcies can result in more creditor challenges to the discharge of debts compared to other bankruptcy cases. These challenges are usually based on allegations of fraud against the business owner. Depending on the nature of the allegations, Chapter 13 may give you certain legal and tactical advantages over Chapter 7.

Conclusion:

Filing for Chapter 7 bankruptcy after closing down your business may seem like the best option, but it’s important to consider all factors before making a decision. The three factors discussed in this blog post – business assets, taxes, and other non-dischargeable debts – can play a significant role in determining what is best for you. It’s recommended to consult with a lawyer to help you make an informed decision.

If you are considering bankruptcy, it’s worth discussing your options; make a free phone appointment with Jennifer N. Weil, Esq. by clicking here.

“If Only I’d Gone to See My Bankruptcy Attorney Sooner . . . “

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Those are the words I hate to hear from a new client.

Bankruptcy attorneys are in the business because we want to help people. It’s an emotionally tough area of law, dealing all the time with clients who are financially hurting. Usually my clients are also hurting in other ways that are related to the cause of their financial problems—illness, injury, divorce, a decline in business, or a job loss. What makes my day is to give great news to a client, that they will now get relief from their debts, or that there is a feasible plan to save their home, or to deal with their child support arrearage or their income tax debt.

The information I share with clients is what they are unaware of before they contact me and it is what they need to know. There may be tough choices to make. I am here to arm you with the law and to guide you through the process.

But the most frustrating situations for both me and my clients are when we find out that they have self-inflicted wounds. These wounds are the easily-preventable-but-now-it’s-too-late bad decisions they’ve made, often just a few months or weeks earlier, without getting legal advice beforehand.

Here’s are some of the most common issues:

1) Preferences:  If you pay a creditor any significant amount before filing a bankruptcy—especially a relative you hope not to involve in that bankruptcy—the bankruptcy trustee may well be able to force that relative, through a lawsuit if necessary, to pay to the trustee whatever amount you paid to that relative.  The trustee can then turn around and pay that money to your creditors.

2) Squandering exempt assets:  Many clients tell me that they have borrowed against or cashed in retirement funds in a desperate effort to pay their debts, using precious assets that would have been completely protected in the bankruptcy case they later file.  Unfortunately, these clients use their retirement money to pay debts that would have been discharged in their bankruptcy.

3) Rushing to sell a home:  Bankruptcy provides some extraordinary tools for dealing with debts that have attached as liens against your home, such as judgments and 2nd mortgages. If you hurriedly sell your home to avoid involving it in your bankruptcy case, or for some other reason, you could lose out on opportunities to save tens of thousands of dollars.

As you look at this list, notice that the legally and financially wrong choice is often what seems to be 1) the morally right one, and 2) the common-sense one. Doing what seems right and sensible can really backfire. But nothing takes the place of legal advice about your own unique situation from an experienced attorney. Avoid ever having to say “if only I had gone in sooner.”

Jennifer N. Weil, Esq. offers free bankruptcy consultations by telephone – please call (201) 676-0722.

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Inherited IRAs not exempt, U.S. Supreme Court says

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The U.S. Supreme Court recently made an important decision regarding Individual Retirement Accounts (IRAs) that have been inherited by someone who then files for bankruptcy.

At issue was an IRA account that the bankruptcy filer had inherited and that contained $300,000.  Bankruptcy law allows those filing for bankruptcy to keep IRA accounts, so long as those accounts qualify as “IRAs” under tax law – this is the case in New Jersey.

However, when the owner of an IRA account passes away and someone else inherits that IRA, that account loses the characteristics that make it an “IRA” under tax law and the account becomes more like an ordinary pool of money.  Because of these lost characteristics upon inheritance of the IRA, the U.S. Supreme Court decided that bankruptcy filers cannot keep all of the money in a very large inherited IRA account, such as the $300,000 involved in this case.

Remember, this decision does not affect bankruptcy filers’ own personal IRA accounts, which generally remain exempt.  It’s a good idea to talk to a bankruptcy attorney about your retirement accounts before filing for bankruptcy to ensure that they are protected through your case.  I offer a free consultation for people in New Jersey who are considering bankruptcy.  Call me at (201) 676-0722.

 

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How to keep an income tax refund in your Chapter 7 bankruptcy

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Can you keep your tax refund through a Chapter 7 bankruptcy?  Maybe.

Everything you own when your Chapter 7 is filed makes up your “bankruptcy estate.”  Usually, most or all of that “estate” stays in your possession and you can keep it because it’s exempt (protected).  The bankruptcy estate includes not only your tangible, physical possessions, but also intangible ones—assets you own that you can’t physically touch—such as money owed, but not yet paid, to you.  A tax refund can be an intangible asset that is part of your bankruptcy estate.  Whether you can keep the tax refund depends on whether it is exempt.

Because an income tax refund usually comes from the overpayment of payroll withholding, the full amount of that refund has accrued by the time of your last payroll withholding of the tax year. So even though nobody knows the amount of your refund until your tax return is prepared a few weeks or months later, for bankruptcy purposes it is an asset of yours by January 1 of the next year.  If you file a Chapter 7 case after the beginning of the next year and before you have received your tax refund, it is part of your bankruptcy estate and the trustee can keep however much of it that’s not exempt. This is also true if you have received the refund and not done anything with it (like if you haven’t deposited the check).

You can avoid possibly having a non-exempt tax refund by filing your tax return, receiving the refund, and appropriately spending it before your Chapter 7 case is filed.  But first, you should seek advice from a bankruptcy attorney.  Your bankruptcy trustee will be interested in what money you receive and spend before bankruptcy, which can be a source of problems if it is not done carefully.

Whether or not your tax refund is exempt depends on how much it is and whether you have room to exempt it.  In some cases, using all or part of an exemption for your tax refund may reduce the availability of the exemption for other assets.  Even if the refund, or a portion of it, is not exempt, the Chapter 7 trustee might not claim it if he or she decides the amount is not enough to open an asset case.  That would be a case where the amount of refund is so small that the benefit of distributing it to the creditors is outweighed by the administrative cost involved.  This threshold amount can vary from one court and/or one trustee to another so be sure to discuss this with your attorney.  But if the trustee is collecting any of your other assets, then he or she will want every dollar of a non-exempt tax refunds.

There is a risk that you will not be able to claim an exemption if you don’t list the tax refund in your bankruptcy papers.  Be sure to always list any tax refund to which you may be entitled.

These same principles apply year-round.  By of July 1, you have had half a year of income-tax withholding deducted from your paychecks.  A bankruptcy filed on on or after July 1 should take that into account, even though some trustees don’t push this issue much until closer to the end of the year, when of the potential tax refunds has accrued.  Nevertheless, you should tell your bankruptcy attorney about income tax refunds expected in the next year, especially if you have a history of fairly large tax refunds.

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How bankruptcy can help save your small business

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Bankruptcy isn’t just for winding up after the end of a business.  It can help keep your business around for longer.

Bankruptcy saves a lot of companies.  Companies can get out of a lot of debt, restructure their operations, and save a lot of jobs.  If you own and run a small business, bankruptcy may be able to save your job, too.

Let’s assume you have a small, simple business.  One so simple that you did not form a corporation or any other kind of legal entity when you set it up.  And let’s assume that you don’t have any partners – that is, you have a sole proprietorship.

In a sole proprietorship, you and your small business are treated as a single unit—unlike a corporation, which is legally separate from you and which owns its own assets and has its own debts.  In the right circumstances, a sole proprietorship can be easier to handle in a bankruptcy.

A Chapter 7 liquidation is seldom a good option if you own a business that you want to keep operating during and after the bankruptcy.  You can discharge your debts in return for liquidation—the surrender of your assets to the trustee to sell and distribute to your creditors. Except that in most Chapter 7 cases everything you own is protected–“exempt”—so that you lose nothing or very little. But if you own an ongoing business, you are likely to have some non-exempt assets.  So the Chapter 7 trustee could take some important parts of your business to sell off or otherwise shut down.

Instead, a Chapter 13 case— sometimes called a “wage-earner plan”—is much better designed to enable you keep your personal and business assets.  You get immediate relief from your creditors under the automatic stay, and for a much longer period of time, usually with a significant reduction in the amount of debt to be repaid.  So Chapter 13 can help both your immediate cash flow and your long-term prospects.  It is also a good way to address tax debt, which is often an issue for struggling businesses.  Overall, it can be a relatively inexpensive tool that combines the discipline of a court-approved payment plan with the flexibility of continuing the operation of your business.

Please understand that when you own ANY kind of business, solving your financial problems will be more complicated.  This is because you are  not dealing merely with the size and timing of a paycheck, but instead with all the financial and practical aspects of running a business.  In addition,  timing issues are often more important in business bankruptcy cases and they require more pre-bankruptcy planning to plot out the best path for you.  So, no matter how small your business, be sure to get thorough legal advice as soon as possible.

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