The Intersection of IRA Withdrawals and Bankruptcy Exemptions

One of the less well-known advantages to IRAs, but an important one nonetheless, is that they provide a significant amount of protection from creditors during bankruptcy. This protection comes under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that went into effect in 2005. The BAPCPA provides protection for up to $1 million in assets held in traditional or Roth IRAs, and is subject to regular inflation adjustment. For purposes of the BAPCPA, a rollover IRA is a traditional or Roth IRA account that was originally funded through a transfer from a qualified retirement plan.

A July article in Forbes discussed a recent case that demonstrated in practice the intersection between bankruptcy law and the exempt status of IRAs. In this case, debtors had filed for Chapter 7 bankruptcy and claimed an exemption for money in an IRA. Usually a fairly routine matter in bankruptcy cases, the issue here was how the lack of a rollover affected the status of the IRA exemption. The debtors had withdrawn money from the IRA and used it to pay expenses, and these funds were not rolled over into another IRA.

The bankruptcy court held that these funds had lost their exempt status because they were not rolled over to another IRA within 60 days. The debtors appealed the decision to the district court and then to the Fifth Circuit Court of Appeals; both courts affirmed the ruling. A relevant quote from the Fifth Circuit decision, quoted in the Forbes article:

“When the [debtors] failed to deposit the funds into another retirement account within sixty days of withdrawal, the conditional exemption expired, and the [debtors] lost their right to withhold the funds from the estate.”

As the article concludes, while IRAs enjoy substantial creditor protection, it’s important to note that this protection is sensitive to the facts of the individual case and the governing law.

Bankruptcy and Entrepreneurship

Entrepreneurs are generally driven and highly motivated people. When a venture or business fails, it can be very hard for the owner to not take it personally. For an entrepreneur, bankruptcy can be a demoralizing and draining experience. However, this doesn’t have to be the case. Another way to look at bankruptcy is as a fresh start. It doesn’t have to be the end of the road. Check out these 6 steps entrepreneurs can take to bounce back after a bankruptcy.

  1. Face it head on

Don’t try to avoid or ignore the issue at hand. Things didn’t work out, and bankruptcy was the best option at hand. This is nothing to be ashamed about or take personally.

  1. Take an inventory

Part of facing the issue in a healthy way is taking a pragmatic look at your financial situation. This is crucial to processing the present and preparing to move on to the future.

  1. Budget

As you move forward, put together a budget and stick to it. This will take away stress, add to peace of mind, and is a practical step to position you for the next move.

  1. Embrace transparency

Don’t hide or dodge the issue with the people around you. Seek out family and friends, people you have healthy and affirming relationships with, to help you come to grips with your bankruptcy and move on to the next thing.

  1. Focus on where you’re at

The same laser focus entrepreneurs have with their businesses needs to be applied to bankruptcy. Rid yourself of distractions. Focus on budgeting and making wise financial decisions that set you up for success in your next venture.

  1. Reengage

Remember, you’re not a loser or a failure. As stated above, this is your clean slate. Concentrate on getting through the bankruptcy efficiently and in a healthy a way, take of yourself, and get ready for the next adventure.  We advise clients to make a list with the heading “Knowing what I know now, what would I do differently?”  Take this knowledge with you as you head on toward your next adventure.

Consumer Bankruptcy: Are You Eligible?

Following the enactment of the Bankruptcy Abuse and Consumer Protection Act of 2005, debtors must pass a means test to qualify for a Chapter 7 bankruptcy. Basically, to qualify you must have little to no disposable income. The means test compares your average monthly income for the six-month period preceding your bankruptcy filing against the median income of a comparable household in your state of residence. Generally, this is not an issue since those filing for Chapter 7 likely have an income that’s significantly below the median.

Even if your income is above the median, there may still be some options. If, due to your income, you do not initially pass the means test, you then complete the means test form in its entirety. Rather than qualifying based on your income, this step entails a balancing process where your overall expenses are weighed against your income. Not all expenses are allowable under this test. But if after deducting the allowable expense from your income you are left with little to no income, you will probably be eligible to file for Chapter 7. This second step of balancing expenses against income is particularly complex, and it is strongly advised that it be conducted with the assistance of an experienced bankruptcy attorney.

Regarding Chapter 13 bankruptcy eligibility, it’s important to remember that you cannot file in the name of a business (not even for a sole proprietorship). For this reason, businesses are generally steered towards Chapter 11. However, even if you are a business owner you can still qualify for Chapter 13 as an individual and still run your business. Business-related debts can be included under Chapter 13 if they are debts for which you are personally liable.

To be eligible for Chapter 13, you must demonstrate to the bankruptcy court that you have enough income (after subtracting certain allowed expense and any required payments on secured debts like an auto loan or mortgage) to meet your repayment obligations. If your secured debts exceed $1,184,200, you are not eligible for Chapter 13.

Chapter 13 vs. Chapter 7: Which is Right for You?

When deciding whether to pursue a Chapter 7 or Chapter 13 bankruptcy, it is wise to sit down with a bankruptcy attorney and analyze your income, assets, debts, and your financial goals. For example, your situation might be such that you don’t qualify for Chapter 7, and would be better off repaying your debt over a period of time in a Chapter 13 repayment plan approved by a bankruptcy court.

A Chapter 7 is a liquidation bankruptcy designed to erase a person’s unsecured debts (e.g. credit card debt and medical bills). To qualify, you must have little to no disposable income. A Chapter 13 is a reorganization bankruptcy designed for debtors who still have a regular income and are capable of repaying at least some of their debt through a repayment plan. This is the option for those who cannot pass the Chapter 7 means test. Another reason to opt for a Chapter 13 is that it offers some benefits that a Chapter 7 does not (like the ability to catch up on mortgage payments you’ve fallen behind on). Below are some additional factors to consider.

Reasons why you might file for Chapter 7:

  • You do not have the ability to repay your debt in a repayment plan.
  • You urgently need relief from your creditors. After you file for Chapter 7, the bankruptcy court can issue a discharge order in as little as 3 months; following the discharge order, you will no longer be personally liable for any dischargeable debt.

Reasons why you might file for Chapter 13:

  • You are not eligible for Chapter 7 in the first place, or have significant debts that are not dischargeable under a Chapter 7 discharge.
  • You want to avoid home foreclosure, stop your car from being repossessed, or keep property that would be nonexempt under Chapter 7.
  • You want to repay your debt, rather than have it discharged.

Know Your Bankruptcy Rights as a Consumer

Bankruptcy laws are on the books to give people a fresh start when financial conditions have become too overwhelming. It’s a right provided to you when you are hit with circumstances like loss of employment, illness, divorce, and other financial hardships; it gives you the ability to stop harassing debt collection actions and provides various other means of relief. It’s important to know the rights you have as a consumer under our bankruptcy laws.

Creditors understandably want to protect themselves against the prospect of debts owed to them being discharged. One of the ways creditors sometimes try to do this is through adding a “bankruptcy waiver” clause to contracts and agreements. Understandable or not, these waivers are not binding. Any waiver of your future bankruptcy rights is not enforceable. Congress has expressly stated in the bankruptcy codes that a bankruptcy debt discharge halts any action against the debtor “whether or not discharge of such debt is waived.” 11 U.S.C. § 524(a)

Once your debts have been discharged, your creditors are prohibited from any collection action per the federal discharge order.  You do not have to tolerate any bullying or undue collection actions from creditors.   If a creditor attempts collection on a discharged debt they can be brought in front of the bankruptcy judge on a Motion for Contempt.

Even prior to filing bankruptcy creditors do not have the right to harass you with excessive telephone calls and letters, or unwanted visits to your residence. The Federal Trade Commission has established rules under the Fair Debt Collection Practices Act that creditors must follow. Creditors cannot:

  • Demand you pay more than you actually owe
  • Add additional fees to the agreement
  • Call excessively, call during unreasonable hours, or call you at your workplace if you have requested that they desist
  • Use threatening or obscene language
  • Contact your employer regarding your debt

If you are being illegally harassed by creditors, you do have recourse. To learn more about your bankruptcy rights, and how they can be enforced against creditors, set up a consultation with a bankruptcy attorney.

 

5 Advantages to Filing for Bankruptcy

Declaring bankruptcy is a means and a right to get a fresh financial start. It allows individuals or businesses to resolve financial issues, rebuild credit, put a stop to aggressive debt collecting actions, and discharge certain kinds of debt that have become unmanageable. Here are 5 advantages to declaring bankruptcy.

  1. Address missed payments, defaults, repossessions, and lawsuits that are keeping your credit score down. While bankruptcy will also hurt your credit score, it is often an easier and quicker way to rebuild your credit score than to try and deal with each creditor individually over a number of years.
  2. Put a stop to creditors’ aggressive debt collecting practices like harassing phone calls, dunning letters, repossessions, and declined transactions. Even in the case of student loans, which are not dischargeable, at least you can prevent future aggressive collecting actions.
  3. You’re wiping the slate clean. The opportunity to get a fresh financial start should not be underestimated. While bankruptcy can have its own stresses, there is a great deal of peace of mind and relief to be gained from declaring bankruptcy. And keep in mind that you will probably end up keeping all of your personal possessions, either because of exemptions or lack of interest from creditors.
  4. While being in a disastrous financial situation often becomes all too public, bankruptcy is something you can keep fairly private. Friends, co-workers, and even your family do not have to know that you have filed for bankruptcy (unless you owe them money as well). The only time your bankruptcy will show up is on a credit history report, and as stated above, that can sometimes make a better statement to a lender than being stuck in a financial quagmire. And even if your employer was to find out, it is illegal under bankruptcy laws for an employer to discriminate based on bankruptcy.
  5. Debt discharge. This is an obvious one, but it’s huge. All of the (unsecured) debt that has been making your life miserable will disappear.

 

Are All Debts Discharged in Chapter 7?

You may have heard that you can extinguish all of your debt completely in one fell swoop if you file a Chapter 7 bankruptcy. In many cases, most of your debt can be discharged through a successful Chapter 7 filing, and all debts could potentially be discharged depending on the nature of the encumbrances. However, there are some debts that can never be discharged through bankruptcy.

 

For the most part, tax debts are not dischargeable. Tax liens and property taxes that have been assessed within a year of your bankruptcy filing date cannot be discharged.  If you are an employer, taxes that you are required to pay on behalf of your employees, like payroll taxes, can’t be discharged. Plus, sales taxes that have been paid to you by customers that you are supposed to pass along the government are not dischargeable. Though taxes are usually non-dischargeable, when very specific circumstances exist, it is possible to discharge some income tax debts.

 

If you are required to pay spousal support or alimony, the bankruptcy filing will do nothing to shield you from your responsibilities. The same thing is true for child support or any debts that you owe to your spouse that came about due to a dissolution of marriage. Any legal fees that you may have incurred during a child custody or child support matter would not be dischargeable. If you have financial obligations as a result of a judgment against you after a drunk driving accident that caused an injury, the debt will not be discharged in bankruptcy. You can see a complete list of non-dischargeable debts if you visit this page on the Cornell University Law School website.

 

The debts that we have been looking at simply cannot be discharged, but there can also be procedural barriers that prevent discharges when they could have otherwise been granted. You have to fill out detailed financial disclosure forms when you file for bankruptcy, and if anything is done incorrectly or dishonestly, discharges can be denied. You also have to complete a debtor education course to qualify for a discharge.

 

Set Up a Complimentary Bankruptcy Case Evaluation

 

A ready legal resource is just a phone call away if you would like to explore the debt relief avenues that may be available to you. We have locations in many metropolitan areas in Oregon, including Albany, Medford, and Eugene, and we also have offices that serve the Tri-Cities and Vancouver in Washington. To schedule an appointment, send us a message through the contact page on this website.

 

What Are Bankruptcy Exemptions?

Our firm has bankruptcy law offices in many different cities throughout the state of Oregon, including Medford, Grants Pass, Coos Bay, Bend, and Portland. If you are filing for a Chapter 7 bankruptcy in the state of Oregon, you are required to surrender certain types of property to a bankruptcy trustee so it can be liquidated. However, in many cases, there is no property that can be liquidated, because many forms of property are exempt for bankruptcy purposes.

 

In Oregon, you have the option of using the federal exemption, or the state exemption. However, you cannot flit from one to the other depending on the piece of property that is in question. The most significant exemption involves your home or any real property that is eligible for a homestead exemption. Call us today do discuss which exemption law would best apply to your situation.

 

Personal property is exempt with rather modest limits. For example, as much as $1800 worth of clothing, jewelry, and other apparel items would be exempt. If you have a piano, some artwork, and/or a book collection, the exemption is $600. Furniture and other assorted household items are exempt with a limit of $3000. A single firearm would be completely exempt if it is not worth more than $1000.

 

Additionally, Social Security payouts, individual retirement accounts, and pensions are included under the exemption umbrella. Any money that you may have in a health savings account would be untouchable, and alimony payments and the tools of your trade would be exempt as well. In addition to the exemptions that we have itemized here, there are a number of others.

 

Now is the time for action if you have been thinking about filing for bankruptcy. As you can see, you are not necessarily forced to give up everything that is important you in return for a fresh financial start. If you would like to discuss your situation with a licensed bankruptcy attorney, call us at 1-800-682-9568 to set up a free, no obligation case evaluation.

 

 

Can Creditors Publish My Name to Embarrass Me?

As bankruptcy attorneys, we get a lot of calls from people who are being harassed by creditors. In many cases, these individuals are extremely frustrated. It seems to them that the tactics that are being utilized are not reasonable or fair. Here at OlsenDaines, we apply a simple rule that is almost always on the money when it comes to creditor harassment: If it seems to you like it should be illegal, it probably is, and there are legal steps that you can take to bring the harassment to a screeching halt.

 

Fair Debt Collection Practices Act

 

Back in September of 1977 a piece of legislation was enacted as a response to very aggressive tactics that were often being utilized by collection agencies. It is called the Fair Debt Collection Practices Act (FDCPA). This measure spells out the parameters that people who work for collection agencies must follow when they are attempting to collect debts. To go directly to the question that serves as the title of this blog post, under a provision contained within the FDCPA, collection agencies are not allowed to publish your name as a delinquent debtor in an effort to embarrass you. (One caveat would be that in some jurisdictions, collection agencies that collect outstanding child support payments are allowed to publish names without violating this law.)

 

There are many other provisions contained within this act that protect consumers. If the collector is aware of the fact that you are not allowed to take collection calls at work, they cannot call you while you are on the job. There are also restrictions with regard to the hours during which they are allowed to contact you. Under typical circumstances, their window is confined to the hours between eight a.m. and nine p.m. Plus, they cannot contact you at all if they are aware of the fact that you have legal representation. These are a handful of the restrictions, but there are a number of others.

 

Schedule a Free Debt Relief Consultation Today

 

You do not have to sit idly by while aggressive, demeaning collectors constantly invade your life. Many people fall into unmanageable debt as a result of circumstances that are out of their control, and regardless of the underlying causes, you have legal recourse. If you would like to discuss your options with a Portland, Oregon bankruptcy attorney, we would be more than glad to assist you. We provide free consultations to people in Portland and a number of other cities scattered throughout the state of Oregon. To set up an appointment, send us a brief message through our contact page and we will take care of the rest.

 

Is Chapter 11 Strictly for Large Corporations

If you have been paying attention to the business news over the years, you have probably read about instances of very large corporations filing for Chapter 11 bankruptcy. Names like Chrysler, General Motors, Dow Corning, United Airlines, and Texaco may come to mind. Without question, Chapter 11 bankruptcies are commonly utilized by large corporations that are struggling with debt that they simply cannot manage. However, this form of bankruptcy can be useful for businesses that are not among the Fortune 500. Read on to get the details.

 

Reorganization Bankruptcy

 

A Chapter 11 is a reorganization bankruptcy. In most cases, the intention is to restructure the financial responsibilities in a manageable fashion so that the business can continue to operate. However, in some instances, the goal will be to effectively liquidate the assets and shutter the enterprise.

 

There is another type of bankruptcy that works in a similar manner called Chapter 13. If you are a sole proprietor or a general partner in a business, you are personally responsible for your business debts. As a result, you can file for Chapter 13. However, many small businesses do not use these structures. They are established as corporations, limited liability companies, or limited partnerships. These entities cannot use Chapter 13; they must use Chapter 11 bankruptcy. This is why Chapter 11 is not strictly for large, publicly held corporations.

 

In very limited cases, a Chapter 11 bankruptcy can be filed by an individual who cannot qualify for a Chapter 13 bankruptcy. There is a debt limit with regard to a Chapter 13 filing, and it is updated every three years. At the time of this writing in 2017, the Chapter 13 limit for secured debts is $1,184,200. For unsecured debts, the limit is $394,725. If your level of debt precludes you from a Chapter 13 filing, you could choose to file for a Chapter 11 bankruptcy.

 

Act in a Fully Informed Manner

 

We have covered one aspect of the intricate bankruptcy maze in this brief blog post. If you are a business person or an individual who is struggling with debt, you should certainly discuss all of your options in detail with a licensed bankruptcy attorney. Our firm serves clients in Portland, Eugene, and many other cities in Oregon, and we also have a couple of offices in Washington. We offer free consultations, and you can reach out to us through our contact page to request an appointment.