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Sometimes you may hear about a person filing bankruptcy and their case may not have the ending they were looking for. Sometimes a case can be dismissed or the debtor could end up losing their assets when they decide to do things differently instead of going by the code. Other times a poor result may [...]
If you’re in California, you may be able to protect your retirement funds from creditors. That can be great news for retirees with money problems.
Most people have a combination of retirement accounts, often representing different phases of their working lives.
You’ve got the employer-held retirement plans, those established on your own, and the accounts that roll over from place to place as the years go by.
Each on is treated differently than the others under California law. Best way to figure out how much you can protect is to look at each in kind.
Protecting Private Retirement Plans From Creditors
Under California Code of Civil Procedure § 704.115, assets held in private retirement plans are fully exempt from execution, both before and after distribution to the judgment debtor.
In fact, the law states that:
all amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt.
That means the money in your private retirement plan is safe from creditors even after you withdraw the money and put it into your bank account.
Creditors don’t always know the source of your funds, though. For that reason, you should use a separate bank account for your retirement distributions. This way you can provide proof of the source of all funds in the event that a creditor tries to grab the money.
See also: Protecting Retirement Accounts In Bankruptcy
Individual Retirement Accounts Offer Fewer Protections
California law doesn’t offer the same protection to individual retirement accounts (IRA’s).
These accounts are protected only to the extent “necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires.”
Deciding whether an IRA is protected isn’t always so simple. Whether an IRA account is considered “necessary” under the law is based on the answers to two questions:
- Is there a present need for the funds?
- Can the IRA holder replace the funds if the IRA is forfeited to a creditor?
Personally, I’m not a fan of IRA’s for this reason. You’re going to need to justify your claim that the account is protected, and the creditor is going to argue the other way. In the end, it turns into an expensive battle in court.
How About Rollover Accounts?
California courts have held that funds traceable from a fully exempt pension plan into an IRA with an otherwise limited exemption are fully exempt
Read the decision: McMullen v. Haycock
In other words, though the funds in the IRA would normally be protected only to a limited extent, the fact that they originated in a fully-protected pension plan served to save the full amount in the IRA.
Retirees Can Breathe Easier
If you’re retired and looking at judgments from creditors, at least your retirement funds are safe and secure.
That protection may be far more expansive than what’s offered to other types of property, but for many it’s enough to make the prospect of a judgment far less worrisome.
Rapper DMX, 42, who filed for Chapter 11 bankruptcy protection this summer, just got his case thrown out by a New York federal judge. The Journal News reported the rapper (real name Earl Simmons) got his case dismissed this month due to several inconsistencies when it came to his paperwork. Yet, this is the second [...]
Are you experiencing financial hardship, but uncertain if you would qualify to file for bankruptcy relief based on your income? We can help! Below is some general information regarding the types of bankruptcy relief and how income is considered for filing. To get a free evaluation of your circumstances, call our office at 866-261-8282 for [...]The post What Income is Eligible to Qualify for Filing Bankruptcy in Michigan? appeared first on Acclaim Legal Services, PLLC.
I Owe My Family Money. Should I Pay Them Back Now? When you file a Chapter 7 bankruptcy, or even a Chapter 13, your attorney might ask you if you have paid any friends or family members any money in the last 12 months? I ask this question to every single client I meet with […]
I Owe My Family Money. Should I Pay Them Back Now? When you file a Chapter 7 bankruptcy, or even a Chapter 13, your attorney might ask you if you have paid any friends or family members any money in the last 12 months? I ask this question to every single client I meet with […]
Should I file a Corporate Chapter 7 Bankruptcy? If you own a business and that business is struggling, bankruptcy might be a consideration for your business. This article will address filing a Chapter 7 for your business, which essentially means dissolving the business. If you file a Chapter 7 bankruptcy for your LLC or S-Corporation, […]
Should I file a Corporate Chapter 7 Bankruptcy? If you own a business and that business is struggling, bankruptcy might be a consideration for your business. This article will address filing a Chapter 7 for your business, which essentially means dissolving the business. If you file a Chapter 7 bankruptcy for your LLC or S-Corporation, […]
Just over three years ago, I received a phone call from an old acquaintance who seemed extremely stressed out. This gentleman had previously been in sales and I had done business with him over 20 years ago. During our dealings we had discovered that we shared several mutual friends and over the years I had run into him several times on social occasions.Now, he needed advice about some significant debt problems. His small business was failing and he owed tens of thousands of dollars to multiple creditors. After reviewing his paperwork I suggested that Chapter 7 would work and should be considered. My friend agreed but did not want to file because he felt very guilty about not paying back his debts.For the next two and a half years, I would talk to my old friend on the phone about his debt problems. He was sued by several creditors but because he was unemployed there were no wages to garnish. He had no bank account so the judgments just sat there waiting for his financial situation to improve.
Finally, about two months ago, my friend called to say that he was ready to file. It turned out that he had a new job and his prospects were improving. I ran the means test numbers and….determined that he no longer qualified for Chapter 7 because he had too much disposable income.My friend’s situation is, unfortunately, all too common. He did not want to file bankruptcy and avoided it successfully for over two years. His concerns were somewhat vaguely stated misgivings as opposed to a firm moral conviction. When his financial situation changed for the better, it was too late. Now, he is faced with the prospect of losing 25% of his take home pay to a wage garnishment and, given that he owes well over $200,000, he’ll be paying for a long time.I would submit to you that my friend made a poor financial decision. I also do not think that he made a particularly good moral decision as he never articulated a thought out moral objection to filing bankruptcy (a fact he has acknowledged to me). From a purely business standpoint, my friend has subjected himself and his family to a great deal of hardship.Everyone has heard of Donald Trump. A business tycoon, reality TV star and sometimes politician, the Donald has filed bankruptcy on corporate debt dozens of times over the past few years. Mr. Trump structured his business deals to avoid personal liability and I’m sure that the interest rates he paid on borrowed funds reflected that. I am equally certain that for every bad deal, Trump was successful on ten others and paid back his loans in full.Trump recognizes that bankruptcy functions as a financial tool. The banks that loaned his corporations money also understood that not every deal works and that there is a risk of default. Banks are in the business of evaluating risk and charging fees and interest to reflect that risk.When you are in financial distress you should make your decision about whether or not to file bankruptcy in the context of a business decision. When your creditor made the decision to loan you money that decision was based on business calculations and you should keep the transaction in this same arena. If you allow personal feelings of guilt to creep into your decision making you will almost certainly not make the best business decision for yourself.As a bankruptcy attorney I help my clients evaluate their bankruptcy options as a good or not so good business choice. My friend allowed non-business considerations to influence his decision making and he will pay the consequences. Don’t you make the same mistake. The post Your Decision to File Bankruptcy Should Reflect Business Considerations Only appeared first on theBKBlog.
When bankruptcy is an option you are considering it is likely you may have questions about which chapter you should file. Some debtors wonder if they can choose which chapter to file or should they consider one over the other. Most people file either Chapter 7 bankruptcy or Chapter 13 bankruptcy, but it depends on [...]
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