Bankruptcy is an issue that faces many Americans. Millions of Americans have had to file for bankruptcy as a result of the financial turmoil in recent years. Congress changed the nation?s bankruptcy laws in 2005, giving debtors some much needed relief when trying to protect certain assets from liquidation. A bankruptcy can be a very traumatic experience, one that takes years of recovery. The problem with many individuals is the type of assets owned.
Real assets are subject to liquidation in a Chapter 7 filing. Even a Chapter 13 bankruptcy does not necessarily protect all assets. The credit score of the person filing for bankruptcy takes a big hit, leaving the individual with few resources for spending earned income or finding ways to obtain financing.
Retirement Funds Normally Exempt
A Chapter 13 bankruptcy involves the reorganization of assets. The debt is usually taken care of by the individual?s wages. In a Chapter 7 proceeding, retirement accounts are exempt from the bankruptcy estate.
The laws passed in 2005 gives debtors a total of nearly $1.1 million dollars in retirement fund protection from liquidation. This federal law is binding in all 50 states. However, individual states often have even more stringent laws to protect monetary assets such as retirement accounts from being seized.
Much of a person?s retirement account is tax exempt and is therefore not considered real property. The law also allows for the exemption of any sort of retirement payments that are being used to support either the debtor or the debtor?s dependents.
Retirement Accounts Are Different
A person is considered by law to either have or not have dominion over his or her assets. A retirement account is not considered to be in the actual possession of the individual. Therefore the owner of the account cannot be considered to have dominion over the monetary amount.
In other words, the person cannot access the funds in a retirement account unless the account is terminated, the person retires, or the person dies. Unless the account is terminated or the individual declares retirement and begins to access the funds, a retirement account is normally exempt and off limits to any bankruptcy proceedings.
Federal law does allow a self-funded account that is set up with a provision for withdrawals at any time to be considered part of a bankruptcy estate. Certain exceptions may exist if the funds are being used as support for dependents or to pay medical obligations.
An employer?s Chapter 7 bankruptcy does not allow for the protection of employees? retirement accounts, and these may be terminated at any time as part of a business bankruptcy proceeding.
Any type of pension plan legally organized by an employer is also exempt from seizure in a business bankruptcy case. All pension retirement monies are by law kept in a separate trust fund account, away from other business assets.
Avoid Scam Retirement Plans
Even the trustiest of friends may not have the know-how to properly set up a binding contract for a retirement investment plan. These documents are cloaked in legal speech and are very comprehensive in their phrasing. Any person asked to join in a new type of retirement plan that is not subject to state or federal restrictions should immediately decline.
If a retirement plan is not properly funded, is written without the necessary specific legal phrasing, or does not contain provisions intended to protect individual investors, chances are it will not be exempt from bankruptcy estates. Even more importantly, the funds could be lost anyway if the program is not above board. Check with a bankruptcy attorney or financial advisor for your specific situation.
This post was contributed by John Russell on behalf of?myfastcashpaydayloan.com, a leading provider of online temporary loans to consumers offering overnight deposits.
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