PSA: Bankruptcy and Your Rights

[uncommon]

I have seen several posters mention in the last few weeks that they used their retirement savings to pay medical bills and now have nothing.

For those who find yourselves in a situation where you are incurring large medical bills (or even small ones that add up) and are considering liquidating your retirement savings to pay them - please think again.

Medical bills can be fully discharged in bankruptcy. Simultaneously, retirement savings are EXEMPT from being liquidated in bankruptcy.

You can KEEP your retirement savings even if you rack up a lot of medical bills.

Please think about this before using your retirement savings.

No one should be suffering in retirement if it is avoidable.

[HopeHoops]

1. That is highly dependent on state law.

It is also typical for the state law to restrict retained assets including:

- Total auto value in the $3000 range.
- Professional equipment (includes tools, computers, supplies) in the < $1000 range
- Furniture (usually unrestricted) in the < $2000 range

And not all medical bills are subject to discharge. That is especially true if you opted out of the most expensive insurance plan available at your place of employment.

On the plus side, retirement funds generally (but not always) are exempt and your primary residence is protected in all states I believe (not positive, but I'm pretty sure). The only caveat there is how they determine "primary". If you have a second residence that is of lesser value, they may declare that as primary. Although I rented both at the time, I lived in PA with my family but kept a condo in VA because that's where my job was. If I had owned them, a bankruptcy court may have declared the condo as the primary residence. That would have sucked - and could have meant moving the family to a really fucked up part of the country.

I know a number of people who took the bankruptcy route. Some came out on the "okay" side, but most got fucked over. Don't even consider it until you discuss it with at least two different lawyers who specialize in the field - and make sure you have a FULL tally of all of your assets. A lot of them give free consultations, but keep in mind that they make their money by dealing with bankruptcy cases. Take everything with a grain of salt and research it yourself.

On Edit:

Bankruptcy also takes time. You are NOT protected from creditors until the court rules. In the time that takes, the collection agencies may succeed in seizing your cars, bank accounts, and other assets. It sucks, but that's how it works. And no, you can't get them back after they are taken.

[uncommon]

3. Federal BK exemptions allow for the full exemption of retirement accounts. State exemptions can

and do vary - in Massachusetts, there is a Qualified Retirement Plans exemption which covers almost all retirement plans. I am sure many states have this.

State exemptions only apply in BK cases where there is equity in a home that exceeds the amount that can be exempt through 522(d)(1) and 522(d)(5) which are the Real Property exemption and the Wildcard exemption.

Cars and real estate that have loans/mortgages can be easily protected in bankruptcy if they are underwater. Equity can be protected to an extent depending on state laws in your area.

[HopeHoops]

7. Oh, boy. That's a can of worms.

"Qualified Retirement Plans" as you mentioned, are not universally covered. 401K plans are the most likely to be seized and IRAs the least likely.

The "state exemptions" thing has nothing to do with total assets or total annual income. Those are entirely determined by the states. There are very few federally mandated restrictions on what the states can decide and ultimately it is still up to a judge to rule on the matter.

If you don't have a mortgage, that isn't relevant - primary residence is still protected. Cars are another matter. If they are under a loan or lease, they can easily be reclaimed by the title-holder. If you own it outright (as I've always done), you are under the state-mandated restriction on maximum value, and that is the sum total of the value of all vehicles. It isn't cut and dry.

All I'm saying is that EVERYONE needs to check with the conditions that apply to them WHERE THEY LIVE. There are relatively few rules that are universal in all 50 states and if they can find a way to fuck you over, they're going to do it. As I said, I've got friends who were reamed in more places than they knew they had.

[uncommon]

9. Actually, they are. I work in BK law and have used this numerous times and it does

exempt them.

I am not arguing that people shouldn't consult attorneys before doing this - obviously they should. I am saying, please do not run out and liquidate your retirement before considering that you may not have to.

State exemptions are only used in cases where they MUST be used - namely, when there is substantial real estate equity.

Cars can only be repossessed after a bankruptcy filing IF the debtor does not pay any arrears (i.e., in a Chapter 13, through the plan) or does not keep up with the payments going forward AFTER filing. If the debtor fulfills these responsibilities, the car CANNOT be repossessed.

You can apply the federal auto exemption to multiple vehicles up to the limit. State exemption vary b(in MA, for example, you have a $700.00 state auto exemption that can only be applied to ONE vehicle even if you do not use the whole thing).

Bankruptcy trustees, who oversee these cases and work on behalf of the creditors AND the debtors, are of course looking for ways to pay the creditors where possible - but they are also there to make sure everyone is treated fairly under the law.

[HopeHoops]

17. It isn't a matter of repossession. It is fair bait for an auction.

The entire "GET RID OF DEBT" thing is a crock of shit. I agree that liquidating retirement funds is a bad course of action, but there's no simple fix to debt. If you owe anything and have anything of value, the court will rule on the side of recovery whenever possible and the laws are VERY different from state to state. They can't repossess an automobile that you own outright, but the court can judge it to be over the allowance and therefore subject to auction. That usually comes with a window during which you can sell the vehicle(s) and purchase another that's within the allowable value, but what the court considers to be the value and what the market value actually is can be quite different.

[uncommon]

4. Federal bankruptcy law allows an auto exemption of $6,900.00.

If there is more than $6,900.00 in equity, debtors can use the Wildcard exemption, which is $23, 950.00.

Federal bankruptcy law allows a "household goods and furnishings" exemption of $23,050.00.

Federal bankruptcy law allows a "tools of trade" exemption of $4,350.00.

Hell, federal bankruptcy law allows a "jewelry" exemption of $2,900.00.

State exemptions are generally much lower, but this is mostly because most states provide something like the Homestead exemption which can exempt up to $500,000.00 in real estate equity.

Please know what you are talking about before giving people legal information.

[uncommon]

5. Also, yes, ALL medical debts are dischargeable. ALL of them. And you are protected from the moment

your case is filed.

Please do not give legal information when you do not know what you talking about.

[uncommon]

6. ALSO - your "primary" residence is determined by where you reside, NOT the value of the

property.

Whoever gave you this information was very, very badly informed.

[HopeHoops]

8. No, where you reside primarily - as in "to get to work".

In my case, (again, I didn't own either place), it would have gone to the condo because I spent most of my time there. My family lived in PA but I was the only income earner at the time. I agree that it has nothing to do with "value", but the court may decide in favor of the lesser valued location based on circumstances.

[uncommon]

10. Yes, where you reside "primarily" - which is in no way tied to property value. The court does not

have the power to choose which residence will be a debtor's primary residence.

[DirkGently]

11. Actually, you're protected the second you file. 11 U.S.C. Sec. 362.

Further, if a creditor seizes property or assets after you file, whether it knew of the bankruptcy or not, the seizure is void.

[uncommon]

12. Precisely, thank you.

[DirkGently]

13. What's a bankruptcy without the Automatic Stay? It's the best part. 8)

[uncommon]

14. Right? We would have no more emergency filings 10 minutes before foreclosure auctions if there was

no automatic stay lol.

[Hosnon]

15. THIS POST IS HIGHLY INACCURATE.

I'm a bankruptcy attorney. I'll deal with the inaccuracies when I get back from lunch.

[Hosnon]

16. Update:

The two main areas I'm going to address are medical debt and the automatic stay (particularly the latter because what was posted could not be more wrong).

(1) Medical bills. As a class of debt, there is nothing I know of that singles them out as non-dischargeable. Three things come to mind that could cause trouble: (a) allowing the medical debt to be taken all the way to judgment (pre-filing) resulting in a lien being placed on your property; (b) offering up collateral in return for the medical services (I've never seen this actually take place, which leads me to believe it is not really an option); and (c) fraud (fraud can make any dischargeable debt non-dischargeable). Bottom line: There's nothing about a medical bill being a medical bill that would render it non-dischargeable. Like all unsecured debt, however, it can cause trouble if it is converted into a secured debt (but this is true of all unsecured debt, not just medical debt).

(2) The Automatic Stay. The automatic stay is just that - automatic. The filing of the bankruptcy petition invokes the stay. Action by the judge is not necessary. The minute you file, collection efforts must stop (with limited exceptions related to having filed multiple bankruptcies in the recent past). If a specific creditor knows you filed and still attempts to collect, they're in for a world of hurt by way of damages. Furthermore, any right to redeem repossessed property becomes part of the bankruptcy estate. The effect of this is that the debtor can force the creditor to return the property as long as that right to redeem exists (in my state it is 10 days). But even if the period has passed (or there is no such period), the property can be recovered going back a whole year if the value of the property was not reasonably equivalent to the value of the debt at the time of seizure. The only wrinkle here is that a third party can purchase the property in good faith, thus taking away your right to recover the property. However, even then, the creditor would be liable for damages.

The automatic stay is what makes bankruptcy work. And each sentence of the poster's last paragraph needs to be negated to be accurate (except the first one - Chapter 13s can take up to five years).

Disclaimer: This information is for informational purposes only and is not intended to be legal advice.

[madrchsod]

2. state exemptions...

http://www.bankruptcyinformation.com/fed.htm

http://www.bankruptcyinformation.com/exemp-fed.htm

as soon as a case is filed all debt collection is stopped.

in some cases medical bills are not counted against a credit score.

yes never pay your medical bills with retirement savings.

[JCMach1]

18. Or put it into an annuity right away... annuities are not attachable as they the equivalent of

an insurance policy...