Monday, January 24, 2011

Filing for Bankruptcy: What Can You Protect?

With 1.6 million Americans expected to file for Bankruptcy this year, we know that at least these 1.6 million and very likely many more researching the bankruptcy option have been asking the same basic questions.  “What can I protect?”   “What will be left?”

A recent article in the Wall Street Journal Digital Network addressed these very questions.  My colleague in Nevada, Lizette Sundvick, offers a summary commentary on this article.

Some may opine that we are climbing out of the recession, but the effects are still wearing on us. According to estimate by the American Bankruptcy Institute, more than 1.6 million Americans are expected to file for Bankruptcy this year, with 42% of filers citing “job loss” and another 65% citing “income reduction” as the determining factor. Against this backdrop, it’s unfortunate that bankruptcy hits responsible persons the hardest because they likely have the most to lose. If you are filing this year, then you may have a great deal you wish to protect. I thought I’d share some tips from a recent article on SmartMoney about what you can protect.

  • A Home: The protection afforded your home depends on your state of residency.  In addition, different states offer different acreage allowances for city and rural properties. Beyond that, the equity you have in your house also can be important to protect, because most states have an exemption allowing a certain amount of that equity to remain with the homeowner in the event that the home is sold by the bankruptcy trustee.
  • Tax-Exempt Retirement Funds: These are usually safe, and IRAs usually can be protected up to $1.17 million per person. Don’t, however, try to dump other assets (i.e., from investments that are not protected) into the retirement fund. This is a no-no.
  • A Car: Trying to retain the car is similar to retaining the house, since your level of protection depends on the laws of your state of residency. If the value of the car is below the exemption limit, and it is owned by the filer, then it can be kept. Otherwise, equity up to the exemption can go to the filer in the event of sale. Of course, in the 16 states that allow the federal “wild-card” exemption, the rest of the value of the car may be covered and the car itself retained, but this itself depends on state laws and exemptions.
  • Life Insurance Policy: If the policy is term-life insurance, then it is generally safe. Whole-life policies are generally regarded as investment vehicles, however, and in that case it will depend on state exemption levels.
  • College Savings: If college savings are held in a 529 plan or a Coverdell account, there are a couple of factors you need to know. If the account is only 2 years old, it is only protected up to $5,000. However, if the account is older than 2 years, it will be safe for so long as the beneficiary is not also the filer.

Generally speaking, the biggest factors are the state-specific exemption levels and allowances. Be sure you obtain competent professional advice to protect your interests (and stay out of hot water).

If you're worried about the future and how you can guard against economic fallout, we can give you some reassurance.  Give me a call to discuss your options.  If you have a question or two, please submit as a comment to this blog post, and I’ll respond in the comment thread or address in a fresh blog post.   


Thursday, January 6, 2011

"My Mother took care of me, so I'm going to take care of her."

I’m often asked the question, “What are the options for a baby boomer with aging parents?”  I was pleased to see this posting by my fellow Wealth Counsel member Suzann Beckett practicing in West Hartford, CToffers one answer for the many baby boomers facing aging parents wishing to remain in their homes but lacking the financial means. 

Medicare benefits without Life of Poverty

The New York Times recently ran an outstanding article, detailing the basics of Pooled Trusts. Most American's are not familiar with the term, or the tool – but thanks to the Times, a much larger audience had the opportunity to read about a means of caring for aging family members, while intelligently keeping the wolf away from the door.

The unfortunate reality for many of us is that a time may come when we can no longer manage to personally provide appropriate care for a loved one in our own home, or in their own home for that matter. But at the same time, we may not have the financial capacity to afford private care providers that would be able to fill the gap.

Pooled Trusts are designed to bridge that void.

Rather than reiterate the content of a well written and very informative piece, I will simply recommend that anyone with an elderly family member read this piece, if for no other reason than to gain some basic insight into an option that may be available and viable, in certain circumstances.

You can find the story on the Internet at:

As a woman who has faced these issues in my personal life, with my own family members, I am intimately aware of the emotional and financial drain that advancing age and health issues can impose on a family. In order to deal with these issues to the best of our ability, we need to be aware of our options, and informed regarding the pros and cons of each of those options. This story is a good step in the right direction on that count.

I am so pleased the New York Times published Tara Siegel Bernard's excellent article on this very important topic.