I spoke with David M. Offen, Esq., a Philadelphia bankruptcy lawyer, and Chad G. Boonswang, Esq. A life insurance lawyer in New Jerseyto provide you with these avenues, you can protect your assets should you must file bankruptcy.
VB: Mr. Offen, how can someone protect their assets from forfeiture and sale when they file for bankruptcy?
DO: First, let me share how bankruptcy works in relation to debtor assets. When someone files a Chapter 7 bankruptcy petition, their assets become “the property of the estate,” which is defined as “all of the debtor’s legal or equity interest in the property since the commencement of the case.” This includes real and private property, bank and investment accounts, and money owed or inherited by debtors.
The bankruptcy of the “estate” debtor will be managed by the Chapter 7 Trustee. It is the duty of the Trustee to determine whether any of your assets can be sold for the benefit of the debtor’s creditors. In other words, the Trustee is attempting to find assets that he can sell for a profit on behalf of the creditor.
VB: It’s scary. How often are debtors’ assets confiscated and sold?
DO: The great majority of Chapter 7 filings are “no asset” cases, in which the debtor’s attorneys successfully exonerate all the debtor’s property from the estate, leaving the Trustee with nothing to liquidate.
VB: Thank you Mr Offen. Can you tell us more about exceptions?
DO: Of course. The statutory “exemptions”, which are available under federal and state laws, are intended to make sure that the debtor is not left destitute after bankruptcy, but rather maintains enough assets to maintain a reasonable lifestyle after bankruptcy and at the same time receives new money. financial start.
This exemption allows the debtor to defend his house, vehicle, jewellery, home items, collectibles, sports equipment and the like. Exceptions have limits, so it is crucial for the debtor to work with an lawyer to assess the value of all assets so that anything the debtor wishes to retain can be released from the bankruptcy estate.
VB: How does the debtor value his assets, for bankruptcy purposes?
DO: It varies. For common home items, I tell my clients to estimate what they will get at the yard sale. For jewellery, fine art and other collectibles, an appraisal is required. For vehicles, I use Kelley Blue Book or NADA. For real property, I tell my clients to call a realtor to get a market value.
VB: What can someone do if the property they want to keep is not exempt?
DO: If the debtor’s interest in certain assets can’t be fully excluded, then it is feasible to apply for bankruptcy and still retain the assets. For example, if considering the market value of the debtor’s home, equity exceeds the allowable exclusion amount, the debtor can file under Chapter 13 rather than Chapter 7 and, over time, pay the creditor what they will receive if the debtor files for a Chapter 7 and the Trustee seizes and selling his house.
VB: Are there any property types that are automatically excluded from estates?
DO: Yes – certain assets aren’t considered “plantation property” and therefore can’t be confiscated by the Trustee. This includes, typically, funds paid into pensions and educational trusts, within certain limits.
VB: Mr. Boonswang, what about life insurance?
CBs: Life insurance is not automatically excluded and you’ll need to look at the policy to determine if it’s an asset the Trustee might seize. Term Life policies haven’t any current cash value so they do not need to be excluded. On the other hand, Whole Life policies do have a current cash value and are therefore a personal asset that debtors need to reveal. The debtor’s lawyer needs to release the Whole Life policy from the bankruptcy estate.
VB: Okay, what if someone files for bankruptcy and then becomes the beneficiary of a life insurance policy?
CBs: Good question, because this does occur. Dave?
DO: Any proceeds from life insurance that the debtor receives within 180 days of filing for bankruptcy are part of the bankruptcy estate, which means that the proceeds may be confiscated to pay creditors. So, the debtor must inform his lawyer if receiving life insurance funds during or after the bankruptcy filing. Hopefully, there are some residual exceptions the debtor’s attorneys can file to protect the proceeds from foreclosure by the Trustee.
VB: Thanks for all this information, gentlemen.
DO: It is my pleasure
CBs: You’re welcome. I hope this helps.
Veronica Baxter is a writer, blogger and legal assistant working in and around Philadelphia, Pennsylvania.
