Individuals who are considering filing for bankruptcy may wonder what will become of their personal property. Will things like their televisions, DVD players, and computers really be repossessed and sold to pay off creditors? The answer depends on the situation. When someone files for Chapter 7 bankruptcy, also known as liquidation bankruptcy, that individual’s assets are sold to pay their debts. In exchange, the person receives relief from certain debts and a fresh financial start. Filing for bankruptcy doesn’t mean the person will lose everything, however. There are a number of bankruptcy exemptions that may apply, meaning some assets will be exempt from liquidation. In many cases, these exempt assets are enough to meet the typical person’s needs. If a person has assets that are used as collateral to secure a loan, such as a car loan or a loan to buy jewelry, those assets are not protected and may be repossessed by the lender. Exemptions depend on the particular state law and generally apply only to items that are paid in full and owned outright. New York state exemptions include things like clothing, furniture, cookware, and other necessary household items worth up to $10,000. Anything over that amount arguably… Continue reading
A New York resident who is facing overwhelming debt may turn to the bankruptcy process for relief. If the person is the beneficiary of a trust, questions are likely to arise as to whether the trust’s assets will fall within one of the bankruptcy exemptions or whether they will be lost to creditors in the bankruptcy process. While there are some options for protecting trust assets in bankruptcy, much depends on the terms of the specific trust. The survivability of a trust’s assets in bankruptcy turns largely on who maintains control of the assets. The two most basic forms of a trust are revocable trusts and irrevocable trusts. True to its name, a revocable trust may be changed or terminated by the grantor during his or her lifetime. The trust’s beneficiary does not have a legal right to the trust’s assets until the grantor’s death, at which time the trust becomes irrevocable. Accordingly, if the trust in question is revocable, its assets may be protected from a beneficiary’s bankruptcy proceeding. On the other hand, an irrevocable trust may not be modified or terminated by the grantor. Even if the trust’s beneficiary does not have the ability to immediately access the… Continue reading
It’s a fairly common question from people in New York considering bankruptcy: can the 401K account be seized and used to pay off creditors? The answer is no. 401(K) plans are protected as a bankruptcy exemption. This is one of the bankruptcy rules that doesn’t vary in any state. There are, of course, people who wonder if this is fair. Should people be able to discharge debts and hang onto a healthy sized retirement account? There is also the issue of whether or not such practices drive up the cost of credit for others as the banks and credit card issuers look for ways to recoup the losses they take. However, at this point, it is perfectly legal to discharge debt and keep any size 401K plan intact. There is one thing to consider, however. The money is safe as long as it is left in the account. If it is removed in an effort to pay monthly expenses before the bankruptcy is discharged, it becomes cash in the bank that can be used to satisfy creditors. Once the case is discharged, the account holder is free to remove the money as needed for living expenses. Bankruptcy law is often… Continue reading
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