Bankruptcy is often caused by a loss of a job, medical bills, or a business failure. Many people fear that filing for bankruptcy could cause them to lose their home and everything that they own. Fortunately, bankruptcy laws allow debtors to keep certain types of assets. These assets are “exempt” and do not become part of the bankruptcy estate that the court uses to pay creditors.
Here are some of the most important exempt assets in chapter 7 bankruptcy:
401k, IRA and Other Retirement Accounts
Retirement accounts that are held by employers, often referred to as ERISA accounts, are exempt in bankruptcy. Examples include defined benefit pension plans, 401k accounts and 403b accounts.
Money in Individual Retirement Accounts (IRAs) can be exempt as well. In 2005, the federal government passed a law which made a debtor’s first $1 million in IRA funds exempt in bankruptcy. The law allowed the exempt amount to increase with inflation; today, up to $1.3 million in IRA funds can be held exempt from the bankruptcy estate.
The Home That You Live In
Your family’s home has value to you beyond what it is worth. The law recognises this; Minnesota allows you to exempt up to $390,000 in home equity from your bankruptcy estate. This means that the court will not sell your home if the difference between the value of your home and your mortgage balance is less than $390,000. Land that is used for agriculture has a larger exemption value of $975,000.
The Car That You Drive
You generally are allowed to keep your vehicle when you file bankruptcy. If you have a loan on your car make sure to tell your attorney.
If you are considering bankruptcy, you need a lawyer who can identify those assets which you get to keep. For more information, please contact us. This article is not legal advice.