Kentucky Bankruptcy Law

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Things to be aware of when facing bankrutpcy #10

I have said it many times – nearly everyone who I help with bankruptcy has already gone beyond reason in trying to pay off their debts by the time they reach my door. This post is about one of those very common steps people take in being as responsible as they can for their financial obligations: emptying retirement accounts.

I am not going to say it is a mistake to empty retirement accounts to pay off debt, nor am I going to say it is a good idea. It is simply a choice. However, it is a choice that you need to make armed with knowledge. Under the Federal bankruptcy code, retirement account funds are exempt pursuant to 11 USC 522. If you have over a million dollars in an Individual Retirement Account, though, you need to make sure your attorney is aware of this so their can maximize exemption amounts.

So, if you take money out of retirement to pay off debts, you are converting exempt assets. This is all well and good if, by doing so, you avoid bankruptcy altogether. However, if it only buys time and you end up filing bankruptcy regardless of the valiant effort, then you simply have lost those funds down the black hole of debt. Additionally, you will have incurred extra taxes if you withdraw the funds or borrow them but are unable to repay timely.

These are funds that would have ridden through the bankruptcy and remained available to for starting over after all debts were discharged. It is very difficult to gauge whether the strategy of raiding retirement accounts will pay off or not. Therefore, I strongly recommend getting a third-party, preferably and attorney familiar with the bankruptcy code, to review your situation before you withdraw those funds. As my dad would say, “There’s no use throwing good money after bad!”

January 6, 2014 Posted by | Alternate Debt Relief, Assets, Bankruptcy, Chapter 13, Chapter 7 | , , , , , , , , , , | Leave a comment

The Christmas Excess Trap

Everything in our culture drives towards giving bigger and better gifts for Christmas. Even when our budget is tight, we do not want to let our families down. So, we are tempted to buy gifts on credit. The risk is that this will put us over the top of our threshold for handling debt leading to a new year’s bankruptcy.

This raises the specter of challenges to discharge of debt for luxury items and having assets that cannot be exempted. That is because the laptop you bought for your child who lives with you is still an asset of yours to report and exempt. Gift items worth several hundred dollars are likely luxuries.

Take a deep breath and remember, the best gift is actually you being present.

December 18, 2013 Posted by | Assets, Bankruptcy, Chapter 13, Chapter 7, Discharge, Exemptions | , , , , , , | Leave a comment

Empty Hands to Gratitude – thanks @brittpendleton

A young man I know recently talked to some students about gratitude. Usually we equate gratitude with stuff we have but Britt used illustrations from the Bible to show that the most grateful hearts are connected to empty hands.

For example, most of us know the story of the women who poured out the whole jar of perfume on Jesus’ head. She could have just poured out a portion and it still would have seemed extravagant, yet she ended up empty handed and was filled with gratitude.

On this Thanksgiving Day this lesson is quite apt. I help people who are unduly burdened by debt. Most are robbed of any ability to focus on gratitude because of the anxiety of losing everything they have worked so hard to obtain. I do not suggest that bankruptcy is something to be desired. Rather, what is desirable is to find peace and gratitude. This comes by no longer clutching onto things and behaviors that fail to fulfill. Sometimes this means recognizing that we cannot overcome our debt without help. Sometimes it means receiving the mirror image of grace offered by the bankruptcy code and emptying your hands.

Thankfully though, that code allows you to keep everything you need and many things you want while still giving you a fresh start. This is a worldly example of redemption that I hope somehow points people to the redemption that matters eternally through Jesus.

November 28, 2013 Posted by | Assets, Bankruptcy, Chapter 13, Chapter 7, Discharge, Exemptions, Gratitude, Property (exempt | , , , , | Leave a comment

Things to be aware of when facing bankruptcy 9

If you have made it to an attorney and are preparing to file bankruptcy, then you have received a packet requesting a lot of information including a list of assets. Be sure to be complete in listing your assets. Now, I do not mean you need to count your skivvies or socks, but you do NOT want to exclude items of value (yes, do give an estimate of the number of outfits and wearing apparel in your household but no need for an exact inventory unless they are fancy designer clothes).

A few things that tend to get left off that list: life insurance policies (even term policies that have no cash value need to be listed), burial plots, and tax refunds. These are all out of sight and out of mind things that, nevertheless, are assets of your estate. Most people have enough exemptions to cover them, and so there is no down side to listing them. The up-side to listing them is a smooth bankruptcy.

November 4, 2013 Posted by | Assets, Bankruptcy, Chapter 7, Discharge, Exemptions, Planning | , , , , , , , , , , , | Leave a comment