Three Things That Are Protected When You File For Bankruptcy
When your debt keeps going up each month, even with regular payments, it may be time to consider filing for bankruptcy. Bankruptcy helps you restructure or eliminate your debts so that you can get a fresh financial start. But if you're afraid of losing everything you own, know that it is a fallacy that you must give up all of your assets in order to qualify for bankruptcy. The following items are generally protected from creditors during bankruptcy proceedings.
1. Retirement Accounts
Your retirement accounts may not be seized to pay back your creditors. Protected accounts include your 401k, profit sharing plans, pension plans, and 403b. In most cases, your IRAs are protected as well, though there are a few rules concerning their protection. Both traditional and ROTH IRAs are protected up to $1,000,000 during bankruptcy. However, rollover IRAs do not have this protection limit.
Retirement accounts are protected in both chapter 7 and 13 bankruptcies.
2. Your Home's Equity
In certain cases, the Homestead Exemption allows you to keep your personal residence during bankruptcy. When you owe less on your house than it is worth, this is called equity and is considered an asset. Thanks to the Homestead Exemption, you can protect a portion of your home's equity from creditors during bankruptcy. To qualify for this exemption, you must have owned your home for at least 40 months before filing for bankruptcy.
The amount that can be exempted using the Homestead Exemption varies based on the state that you live in. Some states have their own state homestead exemption, while others use the federal homestead exemption. When using the federal homestead exemption, up to $23,675 may be exempted for a single person filing for bankruptcy; this amount doubles to $47,350 for married couples.
Homestead Exemption rules vary dramatically from state to state. Many individuals find it valuable to meet with a bankruptcy attorney to learn exactly how much is protected.
3. Your Belongings
Unless you own something abnormally valuable, your personal belongings are not subject to seizure by your creditors. Clothing, books, furniture, and jewelry are all usually considered safe items. The reason for this is that is just isn't cost effective for your creditors to take these items. Once they seize property, they have to go through the process of selling it to recoup any funds. Most personal items don't retain their value, resulting in a minimal profit once you consider the fees and expenses associated with selling the items.
If you cannot afford to repay your debts, bankruptcy may be a viable option. You can even keep some of your assets so you do not become destitute during the proceedings. Take a moment to learn what is protected and talk with a bankruptcy lawyer so you are as comfortable as possible with the bankruptcy process.
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