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Will My Bankruptcy Affect My Retirement Plan?

Will My Bankruptcy Affect My Retirement Plan?

By Ginger B. Kelly, Esq.
March 19, 2020

Quite often I get asked by clients and prospective clients, how will bankruptcy affect my 401(k), IRA, pension, and other retirement plan? My typical response is, “In most Chapter 7 and Chapter 13 situations, most ERISA qualified plans are exempt, meaning you can keep them, but this all depends upon your specific situation.”

What does exempt mean?

Let me explain. First, it’s important to understand the legal term, “exempt.” In the Oxford dictionary, the word exempt means, “free from an obligation or liability imposed on others.” According to Black’s Law Dictionary, exempt is a verb that means to relieve, excuse, or set free from a duty or service imposed upon the general class to which the individual exempted belongs.

Long story short, real life bankruptcy in the US today is not like Monopoly or the Game of Life. You don’t lose everything. You can exempt most possessions up to certain amounts and in some cases, in unlimited amounts. This means that you get to keep those exempt possessions if the possessions are considered exempt and you claim that exemption on your bankruptcy forms and schedules. When you avail yourself of an exemption, neither creditors nor the trustee can take that exempt thing, auction it or sell it to pay your creditors for any reason.

Which Retirement Accounts are Exempt?

When it comes to your retirement accounts, since 2005 virtually all ERISA-qualified retirement accounts and pension plan funds are exempt from creditors (however, there are some exceptions). But what is ERISA-qualified? Black’s Law Dictionary tells us that the word, “ERISA” means, Employment Retirement Income Security Act, which is, “a congressional created minimum standard that assures employees of a sound and equitable retirement plan. Certain types of ERISA retirement accounts and plans are 401(k)s, 403(b)s, RAs (Roth, SEP, and SIMPLE with a few limitations), Keoghs, profit-sharing plans, money purchase plans, and, defined-benefit plans.

Now because Chapter 7 is also known as a “total liquidation” of all your assets, actually your ERISA qualified retirement accounts are safe. The assets liquidated are only non-exempt assets. In most of joint and individual bankruptcy cases, debtors get to keep their cars, their home, their furniture and clothing, most everything they need to live and a few more things like some jewelry, some cash, burial plots, tools of the trade up to certain amounts and even a little bit extra, like ERISA qualified retirement accounts or plans. The same is true for Chapter 13 cases.

Although Chapter 13 debtors must repay creditors out of their disposable monthly income, the exemptions are the same regarding ERISA qualified retirement accounts and savings plans.

A Few Exceptions and Limitations

First, it may be important to note that most general savings accounts, investment accounts, and stock option plans are not protected if they aren’t ERISA-qualified or fall under a special wild card exemption option. Your bankruptcy attorney can discus wild card exemptions with you.

Traditional and ROTH IRAs

Since 2019, Traditional and Roth IRAs are protected under bankruptcy exemption law, up to a total value of $1,362,800. This amount adjusts every three years to account for cost of living increases. The $1,362,800 amount will adjust again in 2022. SEP and SIMPLE IRAs, similar to employer-sponsored 401(k)s, profit-sharing plans, and pensions, are fully protected in a bankruptcy.

Withdrawn benefits

Although the funds in your retirement accounts are exempt from creditors (subject to the limitations discussed above), retirement benefits paid to you as income aren’t exempt. Retirement benefits withdrawn and bot paid back as a loan are considered income.

If you are paying back a loan, like a 401(k) loan, and you used those funds to pay your creditors claims before filing for bankruptcy, things may be different. Speak to your bankruptcy attorney and assess what to do in this situation.

If you are withdrawing retirement funds because you are retired and at that stage of life, there is a chance you may be judgment proof and don’t need to file for bankruptcy. This is an event best discussed with our lawyer.

In a Chapter 7 bankruptcy, the trustee cannot take any retirement benefits not necessary for your support, but it may take amounts paid to you above and beyond those set limits.

In a Chapter 13 repayment plan, retirement income will help determine what portion of your unsecured debts you must repay. A portion of your retirement income may or may not be used by the trustee to pay creditors. This is why you need an attorney.

There are so many options to choose from in bankruptcy. Knowing all the ins and outs of each choice is not only difficult, it’s daunting. Different options are permissible or not, in different states. Chapter choice, timing, multiple bankruptcies and property transfers are things to think about, just to name a few. Dealing with unraveling the information and the challenging legal analysis is always best left to the professionals. My clients prefer to get the counsel of a professional. Based on our Google reviews, it is clear why our clients are satisfied and that they made a wise choice.

Attorney Ginger Kelly is now accepting clients in the Dudley, Webster, Sturbridge, Fiskdale, Southbridge, Saundersdale, Oxford, North Oxford, Charlton, Charlton Depot, Auburn, Leicester, Rochdale, Spencer, North Brookfield, Brookfield, East Brookfield, West Brookfield, Warren, Brimfield, Warre, Wales, Palmer and Holland Massachusetts. We accept clients from Rhode Island on a case-by-case basis.

We can explore whether or not bankruptcy is the easy way out for you. Our office is located in an easy-to-find place in Charlton, MA. When you arrive, you will be greeted by Attorney Kelly and meet in a very confidential and comfortable space and we typically will have a lovely pot of coffee or a cup of tea waiting for you when you arrive.

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ABOUT ME: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like agriculture, conservation and sustainable homesteading. To find out more, Google us, visit our website, find us on AVVO.com or call us at (508) 784-1444 and please, leave a detailed message, your contact information and telephone number. Attorney Kelly will return your call as soon as possible.
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NOTICE: This is an Advertisement. This post is not legal advice. Consult your attorney. Attorney Kelly does NOT provide legal advice to anyone via social media or anywhere over the Internet. Any and all electronic posts and writings, by Attorney Kelly, does NOT establish any type of attorney-client relationship, whatsoever, neither perceived, actual, material, implied or other. We cannot stress enough, if you need personal legal advice, always see your attorney. Do not rely upon Attorney Kelly’s posts, writings or any Internet information on websites or social media for your own personal legal advice. Seek legal advice and representation from your own personal attorney.

Copyright © 2020 by Ginger B. Kelly, Esq., all rights reserved.

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Filed under 401(k), Bankruptcy, Chapter 7, Collection, credit card debt, Debt, Debt Collection, Estate Planning, Exemption, Exemption, Financial, Financial Planning, Law, Legal, lending, loan, Loans, Massachusetts, Massachusetts law, Retirement Savings, Rhode Island, secured interest, security, tax refund, tax return, Uncategorized

Choices About Secured Property in Bankruptcy

Owing money on a secured debt presents a unique set of circumstances for the bankruptcy client. A secured debt can be anything, like a contract, a note, a mortgage or agreement securing property like your home, car, furniture or other piece of property or personal equipment.  Our clients make decisions regarding these types of loans or debts and the property securing them.  Property securing a debt is also known as collateral.  The options available in bankruptcy for Massachusetts and Rhode Island are Reaffirm, Redeem, Pay as Agreed or Surrender.

Reaffirm

To reaffirm a debt, a Chapter 7 client must sign a reaffirmation agreement.  This is simply an agreement, like a contract, that declares the client wishes to retain the debt or allow the debt to continue, even after the bankruptcy case is closed. A reaffirmed debt is not discharged.  The court must approve a reaffirmation agreement and of course, the client must have a budget that shows they can afford to make the payment and keep the debt. There are many reasons why we may or may not counsel our clients not to reaffirm certain debts, especially in Massachusetts. Rhode Island is very different. Each different state has its own set of bankruptcy rules.

Redeem

Redemption is a tool used for a client who wishes to pay a one lump-sum payment to the creditor to buy back property. Sometimes this tool is used to save vehicles, homes and personal use equipment and tools. This option is a useful tool when the property is valued much less than the balance still owed on the debt, (i.e., the loan is “underwater” or “upside down”).  Redemption must be approved by the court and is only permitted under certain circumstances.  One of those circumstances is that the property must be exempt or the trustee has abandoned the property due to it having little or no value. We advise our clients to be very careful when considering redeeming property.  In most cases, when a client has certain assets to buy back property, like a big chunk of money, then it’s critically important for the bankruptcy attorney to carefully evaluate whether or not the bankruptcy client actually qualifies to file bankruptcy.

Retain and Pay

This option is simple.  It is often used with mortgages.  This option allows someone to keep their home or auto loan and to pay for this debt as usual.  The important thing to note with this option is that once the retain and pay option is used, the client no longer is responsible to pay the loan if they decide, at a future date, that they no longer want to pay and want to give up or surrender the property.  In other words, using the retain and pay tool means that the client will no longer be held personally liable for the debt. This option doesn’t work in all situations and for all clients. We counsel our clients very carefully regarding making wise decisions and whether or not this tool should be used.

Surrender

Surrendering Property is exactly as it seems.  Surrender means that the client has made a choice to give up the collateral securing the debt and give it back to the creditor.  This tool wipes the client’s hands clean of the debt.  Once the debt is discharged, the creditor can no longer collect on this debt and the client is no longer liable for the property.

How do I decide?

There are so many options to choose from in bankruptcy.  Knowing all the ins and outs of each choice is not only difficult, it’s daunting.  Different options are permissible or not, in different states.  Chapter choice, timing, multiple bankruptcies and property transfers are things to think about, just to name a few. Dealing with unraveling the information and the challenging legal analysis is always best left to the professionals. My clients prefer to get the counsel of a professional.  Based on our Google reviews, it is clear why our clients are satisfied and that they made a wise choice.

Attorney Ginger Kelly is now accepting clients in the Dudley, Webster, Sturbridge, Fiskdale, Southbridge, Saundersdale, Oxford, North Oxford, Charlton, Charlton Depot, Auburn, Leicester, Rochdale, Spencer, North Brookfield, Brookfield, East Brookfield, West Brookfield, Warren, Brimfield, Warre, Wales, Palmer and Holland Massachusetts.  We accept clients from Rhode Island on a case-by-case basis.  We can explore whether or not bankruptcy is the easy way out for you.  Our office is located in an easy-to-find place to find in Charlton, MA.  When you arrive, you will be greeted by Attorney Kelly and meet in a very confidential and comfortable place and we typically will have a lovely pot of coffee or a cup of tea waiting for you when you arrive.

By Ginger B. Kelly, Esq., December 17, 2019
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ABOUT ME: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like agriculture, conservation and sustainable homesteading. To find out more, Google us,  visit our website, find us on AVVO.com or call us at (508) 784-1444 and please, leave a detailed message, your contact information and telephone number.  Attorney Kelly will return your call as soon as possible.

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NOTICE: This is an Advertisement. This post is not legal advice. Consult your attorney. Attorney Kelly does NOT provide legal advice to anyone via social media or anywhere over the Internet. Any and all electronic posts and writings, by Attorney Kelly, does NOT establish any type of attorney-client relationship, whatsoever, neither perceived, actual, material, implied or other. We cannot stress enough, if you need personal legal advice, always see your attorney. Do not rely upon Attorney Kelly’s posts, writings or any Internet information on websites or social media for your own personal legal advice. Seek legal advice and representation from your own personal attorney.

Copyright © 2019 by Ginger B. Kelly, Esq., all rights reserved

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December 11, 2019 · 2:26 am

Good Credit Scores and How to Get Them

by Ginger B. Kelly, Esq. June 13, 2019

Most lenders aren’t looking for the most perfect clients they can get, they are generally looking for a good credit risk.  A good credit risk is someone who they can verify will pay back the loan on time.  Actually, perfect credit is a matter of opinion and truly depends upon the lender, not whether or not you are in the “800” club.  When it comes to qualifying for a loan, or any other credit product, if your goal is to get the best interest rates and terms offered by your lender, typically you want a FICO score (a/k/a credit score) of around 760 or higher.  This is about the golden mean for lenders and you will be offered the best rate the lender has to offer.  Even if you have a score of 800, you’re still going to get the best deal the lender has to offer.  So it really doesn’t matter whether or not your credit score is a 760, or an 850.

Things High Credit Score Achievers Do to Become High Achievers

OK, so you want to know what the credit elite are.  They are borrowers with credit scores of around 785 or higher.  According to a recent infographic published by myFICO, the consumer division of Fair Isaac, a FICO score of 785 or higher puts you in FICO’s top 25 percent of “High Achievers.”  Setting your goal on a perfect 850 credit score is not necessary.  However, if you want to know a few things high achievers do to become that way, this is it:

FICO High Achievers:

  • Always, always, high achievers make their credit obligation payment on time every time. 96% of high achievers show no missed payments whatsoever on their credit reports.
  • High achievers never max out their credit cards and they always keep low balances.  High Achievers use about 7% of their available credit limits, no more.  Using more than 10% of your available credit limit will drop your credit scores.
  • They carry only about seven credit cards, which include open and closed account.  If you want better credit scores, do not carry more than 7 or 8 credit cards or credit lines.
  • Only about 4 credit lines cards have balances, this includes credit cards and also traditional loans.  This means that high achievers don’t owe more than 4 lenders money at one time.
  • High achievers rarely open new credit lines.  The oldest credit line or credit card was opened about 25 years ago, on the average.  High achievers have the most recent account opened about 28 months ago and the average credit card or credit line is 11 years old.  This means the credit history counts, but it’s not everything.  Even with no credit history, many lenders will loan money to new borrowers.  Credit Unions are more flexible with new borrowers than traditional deposit banks.

Since I am an attorney who focuses on bankruptcy, I must tell you not to take out new credit in the months and days before talking to me about bankruptcy. This will cause more harm than it will good for you.  Even so, I hope you can become a high achiever and achieve good credit scores.  If you don’t have good credit scores and are in financial hot water, but you want good scores and a fresh start again, please give me a call. Perhaps I can help.

Attorney Ginger Kelly is now accepting clients in the Dudley, Webster, Sturbridge, Fiskdale, Southbridge, Saundersdale, Oxford, North Oxford, Charlton, Charlton Depot, Auburn, Leicester, Rochdale, Spencer, North Brookfield, Brookfield, East Brookfield, West Brookfield, Warren, Brimfield, Warre, Wales, Palmer and Holland.  We can explore whether or not bankruptcy is the easy way out for you.  Our office is a quiet and comfortable place to talk, and a free pot of coffee will be waiting for you when you arrive.
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ABOUT ME: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like conservation and agriculture. To find out more, visit our website, or call us at (508) 784-1444.

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NOTICE: This is an Advertisement. This post is not legal advice. Consult your attorney. Attorney Kelly does NOT provide legal advice to anyone via social media or anywhere over the Internet. Any and all electronic posts and writings, by Attorney Kelly, does NOT establish any type of attorney-client relationship, whatsoever, neither perceived, actual, material, implied or other. We cannot stress enough, if you need personal legal advice, always see your attorney. Do not rely upon Attorney Kelly’s posts, writings or any Internet information on websites or social media for your own personal legal advice. Seek legal advice and representation from your own personal attorney.

Copyright © 2019 by Ginger B. Kelly, Esq., all rights reserved

Comments Off on Good Credit Scores and How to Get Them

Filed under Auto Loans, balance transfers, banking, Bankruptcy, banks, Collection, credit card debt, credit scores, Debt, FICO, Financial, Financial Planning, lending, loan, Loans, Medical Debt, payment, practical stuff, Student Loan Debt, tax return