Bankruptcy and Special Assets
If you have decided to file for bankruptcy as a way to get a fresh financial start, you may have concerns about how the bankruptcy filing will affect certain articles of property. What about any money you have received or are eligible for through an inheritance? What about your retirement plan assets? Will you have to reclaim property given to friends or family, or that you’ve recently sold or given away?
Inheritance and Bankruptcy
Whether or not the proceeds of an inheritance will be accessible to the bankruptcy trustee in a Chapter 7 proceeding depend on two issues:
- Whether your state allows you to claim an exemption on an inheritance—the law varies from state to state
- When you received the inheritance—if you have already received the inheritance when you file, or if you receive the inheritance within 180 days of filing, it must be included in a Chapter 7 proceeding
Retirement Plan Assets and Bankruptcy
As a general rule, money put into a retirement plan is exempt from access to pay creditors in a bankruptcy proceeding. This includes profit-sharing plans, defined benefit plans, 401(k)s, IRAs and money purchase plans. The only retirement assets that may be taken by the bankruptcy court are Roth and traditional IRA plan assets in excess of $1,245,475.
Gifts to Friends or Family or Items Recently Sold
A significant gift to a friend or family member within two years (under federal rules) of a bankruptcy filing can qualify as a fraudulent transfer. Some states will look back as far as seven years. As a general rule, if the bankruptcy court finds a transfer to be fraudulent, it will require that the property or its value be returned to the bankruptcy estate. It may also prohibit you from completing the bankruptcy.
Items sold at fair market value typically don’t qualify as a fraudulent transfer, but a sale for less than market value may have the same consequences as a gift.
Contact John Hargrave and Associates
We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.