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You can absolutely keep your 401k if you file bankruptcy in Atlanta, Georgia.  This is one of the most common questions I receive when clients schedule an appointment with me. Many people thing that the bankruptcy court (or more appropriately, the trustee assigned to your case) will liquidate all your assets under a Chapter 7 bankruptcy.  This is simply not the case.  Georgia has specific laws that protect certain assets of the debtor from being taken by the Chapter 7 trustee or creditors.
For instance, under Georgia bankruptcy law (specifically, the Georgia law specific to exempt property in bankruptcy), the Debtor may shield from creditors up to $23,500 of equity in his or her personal residence, $3,500 in a car, and $5,000 in household goods, among other things.
When it comes to 401k retirement plans, you may exempt the entire amount of the holdings in your 401k.  This is one of the most debtor friendly laws in the state of Georgia.  It just makes sense. How can you expect someone to get back on their feet if their retirement is up for grabs by creditors?
Section 44-13-100 of the Georgia Code states,
“Exemptions for purposes of bankruptcy and intestate insolvent estates
(a) In lieu of the exemption provided in Code Section 44-13-1, any debtor who is a natural person may exempt, pursuant to this article, for purposes of bankruptcy, the following property: ”
(2.1) The debtor’s aggregate interest in any funds or property held on behalf of the debtor, and not yet distributed to the debtor, under any retirement or pension plan or system:
(A) Which is: (i) maintained for public officers or employees or both by the State of Georgia or a political subdivision of the State of Georgia or both; and (ii) financially supported in whole or in part by public funds of the State of Georgia or a political subdivision of the State of Georgia or both;
(B) Which is: (i) maintained by a nonprofit corporation which is qualified as an exempt organization under Code Section 48-7-25 for its officers or employees or both; and (ii) financially supported in whole or in part by funds of the nonprofit corporation;
(C) To the extent permitted by the bankruptcy laws of the United States similar benefits from the private sector of such debtor shall be entitled to the same treatment as those specified in subparagraphs (A) and (B) of this paragraph,
provided that the exempt or nonexempt status of periodic payments from such a retirement or pension plan or system shall be as provided under subparagraph (E) of paragraph (2) of this subsection; or
(D) An individual retirement account within the meaning of Title 26 U.S.C. Section 408.
The above statute appears confusing, but it stand for the proposition that all undistributed funds held in a 401k retirement plan are exempt from creditor collection action.
But here’s another wrinkle that bodes well for debtors.  Your 401k funds may not even be property of the bankruptcy estate. To explain, when you file bankruptcy, all your property becomes property of the newly created bankruptcy estate to be administered and liquidated by the Chapter 7 trustee appointed to your case.  However, the Supreme Court has held that retirement plans with an enforceable anti-alienation clause, which is a provision that prevents creditors from garnishing retirement funds of the debtor, are not property of the estate.  This means that the trustee has no power over those funds.  Virtually all 401k savings plans that are qualified under ERISA (Employee Retirement Income Security Act) have an anti-alienation clause.
 

By now, many have heard the news that well-known former baseball player Jose Canseco recently filed for bankruptcy, mainly to deal with back taxes. What many have not seen, however, is the screed he published on the website, Vice.Com, and titled: "Jose Can Say So - I'm Broke and It's the Government's Fault."

Undoubtedly he intended it as a tirade against the government. But interestingly it also serves very well as a testimonial to the dangers of tax debt I have written about in the website of our DC-based tax and bankruptcy law firm. Some excerpts from his harangue and my comments:

" . . . [I]t's my duty to warn you: It can happen to anyone.

When you owe the government--whether it be state or federal--they are relentless when it comes to getting their money back. They institute incredible penalties and interest that almost makes it seem like they want to enslave you."

I have compared owing taxes to having a financial cancer - particularly because the debt grows at an alarming rate -- on the order of about 25% a year, due to penalties added on top of interest. Every month somebody comes to my office complaining that they had been in a payment plan with IRS (known as an "installment agreement") and "it has not gone down!" The reason is, invariably, that the small monthly payment they are making is not nearly enough to pay the interest and penalties that are accruing, let alone the tax (which is the principal, in this case).

Canseco does a good job in describing what it feels like when a person is literally drowning in tax debt:

"Recovering from something like that is very difficult. It's like swimming in the ocean. Once you get out past 100 yards, it looks like 200 yards and the farther you swim the harder it is to get back to shore; you're just swimming around forever and you can never reach the other side. The vastness just keeps expanding and expanding and expanding, by which I mean penalties and interest. Obviously, I've got issues from the past, but it just becomes so overwhelming that you're not even swimming anymore. You're just underwater, sipping air--sipping life even--through a little straw that's sticking through the surface. It's the most frustrating, unnatural thing I've ever had to go through--constantly being suffocated, choked out, and wondering if I could survive until the next day to make more payments on whatever I could."

Pretty good image huh? And he's not bad on describing the consequences either:

"For the last five or six or seven years I've just been trying to, well... live. I've been evicted from homes, lived in friends' converted garages, and bounced from house to house. Putting money into my account became a terrifying activity because there was a good chance the government would immediately confiscate it."

That's true. That's what happens. The tax debtor starts having to live an underground existence. It's pretty much living in the Third World with no bank account, no ATM, no credit, no nothing.

"Things got to the point where even my daughter Josie--her last name is Canseco--was drained one time. I think she said that they returned it, but anything relating to the Canseco last name became a nightmare. Let me tell you from first-hand experience, the IRS are a bunch of thirsty piranhas. They bled me dry."

True again. Even though the tax liability is legally only that of the debtor's, this type of problem will have an impact on your relationships, in a bad way. I'm sure his daughter is not happy with him, looking up to Daddy, and ready to blow him a lot of kisses. Think about what it will do to your marriage when your partner's account is also wiped out, even if only temporarily, or you can't contribute to the mortgage because your wages and bank account have been seized. It does not win friends.

"The issue is very simple: If you've got friends and family, the more money you make the more you spend on them. So let's say you spend half your money on them and the rest on yourself and the cost of living. It may so happen that during all of that you forget to pay your taxes. And then all of a sudden penalties and interest start to add up, and you're in a pool of quicksand from which you cannot escape."

Here, unfortunately, Canseco goes off into a justification and excuse for his actions. I won't comment on the merits of his arguments. You can read them for yourself. But saying that he "forgot" to pay taxes is an excuse right up there with "my puppy chewed up my homework" from grade school days. He may be able to handle a fastball, but he'll never get this past a judge.

A case like his will present some significant legal issues. According to news reports, the back taxes, which make up the bulk of his total debt, are more than $500,000. The key question is how much of that is non-dischargeable tax debt? I trust his bankruptcy attorney made a detailed analysis before filing and discussed the issues thoroughly with him, like we do in our bankruptcy and tax law firm for our clients in DC, Virginia and Maryland.

If it's not dischargeable, Chapter 7 bankruptcy, which is what he filed, will not help him much. The tax debt will still be there when he finishes. Reorganization bankruptcy could give him the right to pay it back interest-free over time, but given his total debt of $1.69 million, he probably would have to file an individual Chapter 11. Chapter 11 for individuals in DC, Virginia and Maryland is always an option to consider and provides powerful relief, but is complicated, expensive, and at this point in time, changing as judge-made case law defines the new bankruptcy law that went into effect in 2005. Consult only an experienced bankruptcy lawyer.

Finally, given who he is, and the potential revenue streams he has available to him as a celebrity from intellectual property (endorsements, copyrights, etc.) that he could generate, I easily see a lot of objections from his creditors, the US Trustee, the US Attorney, and the Chapter trustee if he tries to walk away from this debt without a financial contribution of some sort.

Unlike a bankruptcy for the average person, this one should be a whole new ballgame.

Good luck, slugger.

For the rest of you, if you have questions, give our tax and bankruptcy firm a call.

Chapter 13 bankruptcy may present a platform to obtain modification of first mortgages under the U.S. Treasury Department's "Home Affordable Modification Program" (HAMP).

As most people are aware, Congress did not yet pass the "cram-down" provision for principal residential mortgages. Despite this, the legal landscape does seem to indicate that the HAMP program will be of substantial assistance to homeowners - perhaps in many instances - more than the much sought after "cram-down".

The chapter 13 plan may be a good platform to obtain relief under HAMP. As part of the chapter 13 plan, modification of the first mortgage may be sought under HAMP. Usually the mortgage company retains an attorney to represent their interests and this lawyer will serve as a contact person to insure review for HAMP relief. A substantial portion of first mortgage are eligible for HAMP relief either as Fannie Mae or Freddie Mac related mortgages (GSE Loans) or as the mortgage servicer has agreed to participate in HAMP (non-GSE Loans).

Some homeowners have trouble communicating with their mortgage company to obtain HAMP relief. But as most mortgage company usually retain an attorney to represent their interests, this mortgage company attorney will serve as a contact person to insure review for HAMP relief.

Upon filing of the chapter 13 case, most foreclosure actions are stayed until further order of the court. This automatic stay allows for pursuance of approval of the chapter 13 plan, HAMP modification of the first mortgage, avoidance of wholly underwater junior mortgages, and substantial discharge of unsecured debt.Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983

Natalie Hawkins, mother of 15 year old Olympic gold gymnast Gabby Douglas filed Chapter 13 bankruptcy earlier this year in part due to expenses related to her daughter’s training.  The good new is that Gabby just signed a three million dollar endorsement deal with Kellogs and vows that the first thing she is going to do is help her mom out financially.  Way to go Gabby.

http://www.huffingtonpost.com/2012/08/05/gabby-douglas-mother-natalie-hawkins-bankruptcy_n_1744029.html

http://www.essence.com/2012/08/05/gabby-douglas-stands-to-earn-millions-in-endorsements/