Have you curved your expenses to be able to repay your debts but even that is not enough? Are you on the verge of losing your car, home, and everything you own? Filing for bankruptcy could put an end to this challenging time. It is also essential to understand that bankruptcy is not something to be ashamed of, and you are not alone. The experienced legal team at the Los Angeles Bankruptcy Attorney understands that hard economic times happen. We can work to help you obtain a fresh start and relief.
Bankruptcy and California Pension Payments
After working for long and earning pension benefits, you should depend on the benefits once you retire. However, that does not mean you cannot get into financial challenges and consider filing bankruptcy. Bankruptcy might involve using your property to repay your lenders before getting a debt discharge, so are the payment pensions at risk?
Bankruptcy laws recognize how vital the retirement accounts and pensions are after retiring. Therefore, both the federal and California laws exempt many retirement accounts from bankruptcy. Read on to learn how filing bankruptcy affects retirement assets and savings.
Initial Protection Layer for the Retirement Plans
Per bankruptcy law, almost all your assets are part of the bankruptcy estate and will undergo your bankruptcy process. Common assets protected by California bankruptcy exemption include your motor vehicle and home.
Moreover, contributions to most deferred compensation plans, retirement plans, and tax-deferred annuities are exempted. They aren't included in the bankruptcy estate. Therefore, they cannot clear your loan.
Retirement plans set as trusts are also not included in the bankruptcy estate. The trusts are structured with a language that puts them beyond your lenders' reach, resulting in an extra layer. However, the court will scrutinize all unfamiliar trusts. For instance, if a plan is set up as a trust that a person funds and is a sole beneficiary, it won't be safeguarded in their bankruptcy.
Essential Federal Exemptions
Federal laws set out the bankruptcy exemptions and permit states to have their exemptions. The states can also determine where persons filing bankruptcy can only use their state exemption or select federal or state exemptions. The Golden State requires the use of state law exemption. Nonetheless, some non-bankruptcy federal exemptions such as those on retirement plans are applicable even when you are a California resident.
Federal Exemptions and Retirement Accounts
Bankruptcy laws experienced significant reforms in 2015. While most changes weren't debtor-friendly, the retirement funds reforms improved debtors' protections. Per federal laws, all retirement funds and pensions are safeguarded from lenders even when the borrower lives in a state with its exemption plan like California. Interestingly, the exemption amounts are mostly unlimited.
Common examples include:
- Employee annuities
- Profit-sharing plan
- Eligible ERISA (Employee Retirement Income Security Act) pension plans
- Defined benefit plan
- Stock bonus plans
- The government deferred compensation plan
- Money purchase accounts
- California Exemptions and Pension Payments
Retirement income contains several protection layers from bankruptcy. California law, federal laws, and trust accounts' terms protect your retirement from your creditors. Even if your retirement funds are exempt, your lender cannot take hold of the pension payments because they have originated from the pension account.
California Protection for Your Private Retirement Plan
If the pension plan doesn't fall under Employee Retirement Income Security Act but is a private retirement plan per California laws, it could be protected. You don't have to establish that these funds are essential for support.
The private retirement plan should be designed as an employment pension plan, with rules limiting access to these funds. That way, you qualify. You can't deposit one huge lump sum of money or withdraw your retirement account funds to your PRP.
A private retirement plan is a retirement savings plan available to workers whose employers don't provide pension plans. It is designed for retirement, and you can't transfer your money in and out of your PRP casually. If you use private retirement plan money prematurely or serve a non-retirement purpose like paying personal expenses and debts, it might lose the exempt status.
How Filing Bankruptcy Could and Could Not Affect the Retirement Savings
What takes place to the retirement money in Orange bankruptcy proceedings depends heavily on whether you're planning to retire soon or already retired and bankruptcy type choice. Other rules involve the forms of dischargeable debts and the garnishment of your Social Security benefits.
Filing Bankruptcy Before Retirement
If you have not retired yet, your creditors cannot reach the funds in the retirement accounts like Keogh or 401(k) whether you file Chapter 13 or Chapter 7, irrespective of the amount you have saved.
Generally, if you've money in a Simple IRA, IRA, SEP-IRA, or Roth IRA, the money is exempt from lenders but only to a specific amount. The limit is one million three hundred sixty-two thousand and eight hundred dollars until April 2022. The cap amount adjusts after three (3) years depending on the cost of living.
Bringing Bankruptcy Following Your Retirement
If you've retired and are receiving income from the retirement accounts, the funds are more available to your creditors. The concern here is the amount you require to satisfy the living expenses. As far as Chapter 7 filers are concerned, anything above what they need to support themselves is fair to lenders. When filing Chapter 13, the retirement plan income might be counted when determining the loan amount you could afford to pay.
Your Social Security Benefits
Per federal laws, creditors can't garnish the social security benefits. Nonetheless, the federal government allows funds to be deducted from the social security check before receiving it for payment of alimony, federal taxes, student loans, and child support.
After receiving the money, creditors could seize it. Fortunately, under the rules enacted in 2011, banks should be aware of whether you have federal benefits in your account before allowing funds to be taken. If your account has any government benefits, the bank should safeguard two (2) months' worth of lenders' benefits.
Discharging Your Debts
Some of the debts that could be discharged in a Chapter 7 case include medical bills, credit card debt, utility bills, personal loans, and attorney fees. Generally, child support, auto loans, mortgage, and liens are not discharged in Chapter 7.
Making the Right Decision
If you're struggling with unpaid credit card interest or medical bills, Orange bankruptcy could provide relief.
Nonetheless, some seniors might be deemed judgment proof (they have nothing for their lenders to collect should they take legal action and prevail). If that is your current situation, bankruptcy might not be necessary. Speak with a seasoned lawyer about the viability of filing Orange bankruptcy.
Does Filing for Orange Bankruptcy Affect Your Pending Divorce Case?
Assuming you file for divorce and you are trying to resolve child support and child custody issues and in the process of dividing your marital property. Unfortunately, you can't afford to foot your bills and contemplate filing bankruptcy. Will your bankruptcy case affect your divorce case?
Well, a bankruptcy case doesn't affect any action to determine child support and custody. However, it will halt your pending divorce proceedings associated with the division of assets.
Bankruptcy Results in an Automatic Stay on Division of Property
Once you bring a bankruptcy case, all your assets become part of the bankruptcy estate. Moreover, the automatic stay that bans any action from acquiring or even controlling your bankruptcy estate becomes effective. It includes a proceeding to share estate during your divorce.
Generally, how the bankruptcy case will affect the divorce depends primarily on whether the debtor brought a Chapter 13 or Chapter 7 case.
After filing for bankruptcy, the judge will appoint a trustee to oversee the case. The bankruptcy trustee in Chapter 7 has the discretion to sell the non-exempt property and pay your lenders. In other words, if you filed bankruptcy during divorce proceedings, the trustee should determine which property becomes part of your estate and if it can be disposed of to repay your lenders.
If both you and your ex-spouse have joint property, the bankruptcy trustee could sell all the assets if you cannot exempt your interest's value in the assets. If the bankruptcy trustee believes that your ex-partner's interest in the asset does not form the estate, the bankruptcy trustee could pay your ex-spouse the worth of your interest from sale proceeds.
Here the trustee does not sell your assets to repay your lenders. However, the value of your non-exempt property affects the amount you should pay your unsecured lenders through the repayment plan. In other words, the bankruptcy trustee should determine the asset interest's value.
The repayment plan takes three (3) to five (5) years to complete. As a result, you should seek permission from a judge to proceed with property division in divorce.
There are numerous areas where family law and bankruptcy law could overlap. Filing bankruptcy during divorce could sometimes result in complications and delays in the divorce proceedings. Consequently, you should consult with a knowledgeable Orange bankruptcy attorney.
Frequently Asked Questions
Any seasoned bankruptcy attorney will tell you that you have answered one of these questions more than once:
How Does Chapter 13 Differ from Chapter 7?
In Chapter 7, the bankruptcy court will discharge almost all your debts. In return, the trustee could take any asset that isn't exempt from collection, sell it, and then distribute the sale proceeds to the creditors.
On the other hand, in Chapter 13, you suggest a repayment plan with the court to repay some or all the debts over three to five years. The amount you should repay depends mainly on your income, debt type, debt amount, and assets.
You will lose your assets in Chapter 13 because you fund the repayment plan through the income. In a Chapter 7 case, you choose the assets you qualify to keep from the state exemptions. Some of the property you can keep in Chapter 7 include:
- Homestead exemption
- Retirement plans
- Personal property
- Equipment used in your workplace
- Public benefits
Is Student Loan Debt Dischargeable in Bankruptcy?
Student loans are not discharged unless you prove that repaying your loan could be an undue challenge. You should bring a Complaint to Determine Dischargeability with the court. It initiates a separate adversary proceeding.
While different bankruptcy courts use various hardship tests, many courts will only grant the discharge if you have a severe disability that stops you from working, are a senior citizen, or have dependents.
Under the Brunner test, you could only get a discharge if:
- Repaying the loan would cause you and your dependent to live in impoverished conditions.
- Your state of affairs will be throughout the loan repayment duration.
- You attempted in good faith to repay your loan.
If you can't pass your test, you'll owe the loan once Chapter 7 is over. Nonetheless, you can pay your lowered student loan payment throughout the loan repayment period. Regular payment should resume after completing the Chapter 13 repayment plan.
Who Notifies Your Creditor about Your Bankruptcy Filing?
The court notifies your lenders about the bankruptcy case. Generally, the creditors will receive a letter (B9A) from the U.S. Bankruptcy Court's Clerk. The letter will notify all lenders outlined in the schedules of your bankruptcy filing. The B9A contains detailed information such as:
- Your name, address, and last four (4) digits of your social number
- The name and address of your Orange bankruptcy attorney
- Your case number
- The jurisdiction where you brought your case
- The bankruptcy trustee
- Date, location, and time of your Meeting of Creditors
- Actions that creditors can and cannot take after your case has been brought
Please note that only lenders listed on the schedules will obtain notice of the filing. If you leave a creditor off the filing, the debt discharge does not bind them.
Your creditors should stop harassing you and any attempts to collect debts immediately they receive the notice. If you have any problem with a given lender, notify an attorney. The lawyer will send a motion to take the creditor to court for sanctions and notices.
Find a Skilled Bankruptcy Attorney Near Me
Bankruptcy is one of the things that many do not think will happen to them. However, unexpected circumstances occur in life, and bankruptcy offers relief from massive debts. Los Angeles Bankruptcy Attorney understands filing bankruptcy can be overwhelming, and also, you have a lot of unanswered questions. We invite you to address your concern and ask all your questions in your free initial consultation. Contact us today at 424-285-5525 to get back on your feet.