At any stage in life, filing for bankruptcy takes some consideration and thought. We understand that it’s rarely an easy decision. However, the single most common thing my clients say after filing is that they should have done it sooner!
The concerns for someone in retirement are going to be very different than for someone in their 20s or 30s. For people who are retired, their top two worries often are:
- If I file for bankruptcy, will I lose my home?
- What will happen to my retirement accounts?
Contrary to popular myth, you don’t “lose everything” when you file for bankruptcy. Most assets, including $420,000 in home equity and your retirement accounts, cannot be sold or taken from you. What assets are protected and how much will depend on which type of bankruptcy you file.
What Are My Bankruptcy Options?
There are two types of bankruptcies that individuals may qualify for, Chapter 7 and Chapter 13.
You must meet income limits for Chapter 7 bankruptcy in Minnesota. Each type of bankruptcy has advantages and disadvantages.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, most unsecured debts like credit cards and medical bills are eliminated.
While Chapter 7 essentially gives you a clean slate, certain debts will not be eliminated. You will still be responsible for the following debts:
- Most Taxes
- Child Support
- Student loans
- Credit card debt incurred close to your bankruptcy filing
In exchange for wiping out your debts, a trustee may sell certain assets to pay your debtors. However, most of your possessions will be protected.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a little more complex. It is a payment plan where you pay what you can afford for 5 years, and then whatever hasn’t been paid back at the end of the 5 years is discharged. They payments are always affordable because they are made from your personal budget.
One advantage of Chapter 13 bankruptcy is that collection efforts stop and you typically get to keep more your assets than in Chapter 7. However, you must have enough income to be able to keep your payment arrangement.
Will I Lose My Home if I File for Bankruptcy?
By law, certain assets cannot be sold to pay off debts during a bankruptcy proceeding. These assets are called exempt.
Assets that are typically considered exempt include:
- Equity in your home, up to $420,000 in Minnesota
- A vehicle, up to a certain value
- Most clothing and household goods
- Retirement accounts
When you file for bankruptcy, you have the choice of either claiming the Minnesota exemptions or the federal exemptions. Each set of exemptions varies in what assets are protected and how much is protected. An experienced bankruptcy attorney can go over your assets and decide which set of exemptions is most advantageous for you.
It’s worth noting that currently, Minnesota has a much greater home equity exemption compared to the federal exemption:
- Under the federal exemption, $25,150 of home equity is protected.
- Under Minnesota’s exemption, $420,000 of home equity is protected. If the homestead is used for agricultural purposes, the amount is $1,050,000.
Thanks to the generous state exemption, most people in Minnesota don’t have to worry about losing their homes or losing any hard-earned equity.
What Happens to My Retirement Accounts?
Whether or not your retirement account is protected during bankruptcy depends on the type of account.
- ERISA plans like 401k, 403b, profit-sharing plans, defined benefit plans, and Keoghs are typically protected in their entirety.
- Roth IRAs and IRAs are exempt up to a certain amount. Currently, $1,362,800 per person (not per plan) is considered exempt.
If you receive regular pension payments, this amount may be counted as income. Your income will determine if you qualify for Chapter 7, or if Chapter 13 is the better option for you.
Get Advice from Debt Relief Experts
At Walker & Walker, we help people at all stages in life find debt relief. Contact us for a free consultation. One of our experienced attorneys will go over your situation and let you know what you may qualify for. Your meeting with us is confidential, and you are never under any obligation.