Yes. There are exceptions, but generally speaking your retirement funds are protected from creditors in a bankruptcy. This is why it’s so important to take action and consider bankruptcy before depleting retirement accounts to manage bills. A Charlotte bankruptcy attorney can assist in determining whether your funds are protected, but here are some general rules:

The Law

The Supreme Court has found that the anti-alienation clause protects your retirement accounts from creditors. What this means is that your retirement funds are not included in your bankruptcy estate so it is outside the reach of creditors and the bankruptcy trustee.

Qualified Plans

Provided the funds are held in a qualified plan under the federal pension savings act and have not been transferred into that account for the purpose of avoiding creditors, you will be able to protect them even when filing bankruptcy.

IRAs

I represent a lot of clients who have their own businesses and do not contribute to employer 401k plans. Instead, they often have IRA contributions they need to protect.

IRAs represent a different type of retirement vehicle, owned by individuals. These are protected up to $1 million. Unfortunately, savings and checking accounts are not protected as retirement funds even if you label them as such or intend to use them for retirement purposes. There are exemptions in bankruptcy, however, which can be used to protect money in these accounts.

401k Loans

Lastly, it is not uncommon to have a 401k loan in place when filing bankruptcy. These loans are not dischargable in the bankruptcy but together with back taxes and other similar debt, they will not prevent you from a successful filing.

Call today to speak with me regarding your options—you’ll feel better knowing your rights and I’m happy to have the conversation. 704.749.7747.

Clients who surrender their home or condominium in bankruptcy are often approached by the mortgage lender or a realtor, about doing a short sale. For most, this is confusing. The property was given back to the mortgage lender in bankruptcy, so why is the homeowner being asked to participate in a short sale?

Post-Bankruptcy Obligations

After you receive your discharge in a Chapter 7 where you surrendered the home, you are not liable for the mortgage. Fortunately, for most clients this means they get to live ‘rent free’ at the property until the bank decides to move forward with foreclosure– and sends you a notice to vacate. You should feel comfortable signing off on a deed to the bank or to the new buyer, if requested, but consulting a lawyer is always a good idea.

Will My Credit Be Affected By A Foreclosure?

Your bankruptcy discharged the debt owed to the mortgage lender. If there is a subsequent foreclosure, there is no further credit damage– the debt has already been discharged.

What About A Short Sale?

If you are approached by the bank or a realtor about doing a short sale, essentially what is being proposed is that your payoff to the bank be lowered to accommodate a low sale price. At this point you should be asking yourself: What payoff? I thought I surrendered this property and am not responsible for the mortgage? And you’re right. You have no obligation. But a short sale benefits the bank and the new buyer and realtor, so that’s why you’re being approached.

I Want To Help. What Should I Be Concerned About?

It’s common after bankruptcy to sign over your legal interest in property either to the bank or to a 3rd party buyer in foreclosure; however, if are the selling party on a short sale transaction, a few red flags are raised:

1. As seller on a contract for land, you are taking on responsibilities to deliver the property in a certain condition, and free of liens or encumbrances, including HOA dues and taxes. Those were discharged by your bankruptcy and to the extent any HOA dues have accrued since you sold, they are typically taken care of by the bank or buyer in foreclosure.

2. In a short sale, the bank is lowering the amount due to them on your mortgage. After your discharge you owe them nothing. If they ask you to ‘reaffirm’ the debt as part of the short sale, you’ve just re-committed yourself to the loan amount. Then, when the bank sells to the buyer and lowers their payoff to do so, you receive a 1099 form for “forgiveness of debt.” This means you will be responsible for the amount forgiven, from a tax perspective. If the bank forgives $20,000 in debt to make the sale work, you’ll owe the taxes due on $20,000 of income.

3. The bank is looking to save the cost and time associated with the judicial foreclosure process. This is one reason the short sale is attractive to them. They save money and time, and give you nothing in return except the uncertainty as to your new obligations once you start signing papers with them.

Talk to an attorney before assisting the bank with a transaction related to your property. Your bankruptcy attorney should be more than willing to review documents for you. If he or she isn’t, feel free to call me. I’m happy to help make sure you don’t accidentally undo the benefits of bankruptcy. 704.749.7747.

I understand my clients’ concerns about their credit score when considering filing bankruptcy. It’s hard to predict exactly what your credit score will be after filing bankruptcy but here are some guidelines and a few things to think about.

Your Current Credit Score

If your current credit score is in the low 600’s, you can expect about a 50-75 point drop. One year after filing, however, you can expect that your credit score will be higher than it was prior to filing. The reason is after you receive your discharge in bankruptcy, your income to credit ratio is much ‘healthier,’ which raises your score.

If your current credit score is below 600, bankruptcy will lower your score but it shouldn’t be your primary concern. Your credit is already damaged. The benefit of filing—freeing up monthly disposable income and eliminating the balances on credit cards, medical bills and sometimes taxes—will serve you far better than trying to preserve a credit score.

If your credit score is 750, you will most likely see about a 150 point drop. This is perhaps the most dramatic shift, as you are going from perfect credit to bad credit. But keep in mind, you’re considering filing bankruptcy because you can’t pay your monthly bills. If that continues, you’ll start missing payments and your credit score will drop accordingly. At least with bankruptcy you achieve a goal.

There Are Many Factors To Consider

My job is to understand my clients’ objectives, and to help them make a decision based on the options. My personal preference is for a healthy and balanced financial and personal life and in most cases, when unsecured debt has mounted, Chapter 7 and Chapter 13 bankruptcy becomes a powerful option with immediate and lasting changes.

Call Our Questions Line

We’re here to answer questions all day and some evenings. Call any time. There is no charge. You’ll speak with an attorney and come away from the call better educated about your options. 704.749.7747.

Yes. Even if your vehicle was repossessed prior to you filing bankruptcy.

Federal law allows an individual who has filed bankruptcy to to compel the creditor (or collection agency) to return possession of the property. The reason is two-fold. First, the bankruptcy estate of the individual filing has been determined to include items the individual has an ownership interest in, whether he is in possession of them or not. Second, the automatic stay in bankruptcy prevents creditors from pursuing collections attempts until the stay is lifted.

Protecting Your Interests

The practical result of all of this is that provided your car has not been auctioned off, with the help of your Charlotte bankruptcy attorney, you can demand the return of the vehicle. Your attorney can help you decide if bankruptcy will protect the car, or if you will have to contribute financially in some manner in order to keep the car. This is a function of your exemptions in bankruptcy, which often protect 100% of your ownership interest in your vehicle.

You Have Options

Depending upon your equity in the car, and whether you file a Chapter 7 or a Chapter 13 bankruptcy, you may need to get caught up on payments prior to your 341 meeting, which takes place about 30 days after filing.

Plan For The Future

This is a great time to have a conversation with your attorney about the value of the vehicle, as well as other vehicle options you may have. Prior to filing bankruptcy is a great time to refinance a car or get into a different vehicle that you will keep through bankruptcy. Strategizing with your lawyer can yield wonderful results, while relieving you of other financial burdens like credit cards and medical bills.

Call me today to find out what your options are. I’m eager to help. 704.749.7747. Or, if it’s easier, contact us via email HERE and we’ll be in touch shortly to help.

When you don’t have enough money to pay creditors, it’s difficult to imagine being able to pay an attorney to make those same creditors go away. I encourage clients who are stressed by financial problems to focus on the long-term. And if bankruptcy is going to provide a long-term solution for helping you regain a peaceful and financially stable life, here are a few way to pay for it:

Borrow It

This isn’t an option for everyone. Some clients have borrowed from friends and family over the years just to keep their heads above water. Going back to them for ‘one last favor’ may not feel good. However, this is different. If you’re considering asking a friend or family member for a loan to file bankruptcy, you can insure them of your ability to re-pay it because all of your other monthly debt will be gone. And, the bankruptcy court allows you to re-pay this loan, after your bankruptcy is complete.

Stop Paying Creditors

Once you’ve spoken with a bankruptcy attorney, you can determine which monthly debts will go away with bankruptcy. Take the money you’ve been sending those creditors each month and start putting it toward the bankruptcy fee. It may take a few months, but once you’ve decided to file, you don’t need to worry any longer about the consequences of not paying credit card companies and medical providers.

Stop Paying Your Mortgage

In many cases, clients who are turning over their homes in bankruptcy are able to stay in the home for months without paying the mortgage before leaving the home. This aids tremendously in getting back on your feet financially. In fact, when you file bankruptcy all foreclosure proceedings are ‘frozen’ by the Automatic Stay in bankruptcy. This means your living situation is not disrupted or threatened until your bankruptcy case is dismissed or you receive a discharge.

Use Your Tax Return

If you have been using your tax return to catch up on bills, consider filing bankruptcy instead. The strategy isn’t working for you, but bankruptcy will. When next year’s tax return comes you can invest it, spend it on home repairs, or treat yourself in some way—but you won’t be paying creditors with it.

Use Retirement Funds

I hesitate to recommend that clients use retirement funds to pay for bankruptcy, because those funds are typically protected from creditors. However, if we decide that the short-term expense of using 401k funds or other protected funds to pay for the bankruptcy is outweighed by the positives, then it’s a consideration and it’s allowable.

Can I Use Credit Cards To Pay?

No. The bankruptcy court does not allow you to use credit cards to pay for your bankruptcy. All cash advances and major purchases during the time leading up to bankruptcy are heavily scrutinized by the court, and the creditor can claim you abused the line of credit if you use it to pay a bankruptcy attorney. An attorney can help you strategize around the use of your credit cards prior to bankruptcy though, so make that part of your conversation when you call for advice.

Talk To An Attorney

The most important thing you can do is find out what your options are. Call me today for a complimentary and stress-free conversation about your options in bankruptcy. You’ll know more, and you’ll feel better. 704.749.7747.