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Debt often starts to pile up slowly – it can come about from the loss of a job, divorce, excessive credit card expenditures or unexpected medical bills. But debt is rarely static. If left unattended, it will continue to compound and grow over time and can quickly reach unfathomable proportions. When this occurs, bankruptcy may be the most practical course of action. State and federal bankruptcy laws dictate the treatment of personal assets, but what about health savings accounts? If you have an HSA, FSA, HRA account or something similar, you may be wondering if filing for bankruptcy will put those accounts at risk.

If you have an HSA, FSA or other health savings account and are struggling with debt, contact Sirody & Associates, experienced bankruptcy attorneys, for a free consultation. Call (410) 415-0445.

What Is Bankruptcy?
Bankruptcy offers consumers a legal solution get out from under crushing debt and away from aggressive collection calls. Following a bankruptcy, many people describe overwhelming relief or the sensation of a burden being lifted away. Bankruptcy permits people to start over financially with a clean slate. There are two types of personal bankruptcy, Chapter 7 and Chapter 13. An experienced bankruptcy attorney can advise the best course of action for an individual’s unique financial situation. 

Health Savings And Flexible Spending Accounts
Health Savings Accounts (HSAs) allow money to be set aside specifically for medical expenses. Contributions may be made to an HSA before taxes, and this savings account can grow over time. HSAs have grown in popularity over the past several years and can be used to cover things like doctor visits, physical therapy, prescription drugs and hospital stays. Flexible Spending Accounts (FSAs) are specifically designed to cover medical expenditures, but employers can contribute to an FSA and thereby help the savings opportunities grow. Generally funds in an HSA account roll over each year, whereas funds in an FSA account must be used by year-end.

Health Reimbursement Arrangements
Health Reimbursement Arrangements (HRAs) are set-up by employers to help workers pay for out-of-pocket health-related expenses. Employee contributions to these accounts are pre-tax, but other than that, HRAs can vary greatly from one employer to the next. In some cases, employers as well as employees may contribute to the account. Some HRAs may stipulate that funds must be used by year-end, whereas others may roll over.

Bankruptcy Exemptions In Maryland And Other States
Individuals who file for personal bankruptcy are able to claim certain assets as “exempt”, or protected from creditors during bankruptcy. Under federal law, some employer-sponsored savings accounts and IRAs fall under this exemption, but these laws do not specifically exempt HSAs or other medical expense accounts. Laws at the state level mandate whether or not an exemption may be claimed for HSAs and other types of health and medical savings accounts. Some states such as Texas, Mississippi and Florida allow the exemption while others, such as Maryland and Idaho, do not provide specific exemption protection for HSAs. However, even if your state does not provide an exemption for health savings accounts, you may be able to protect all or part of those funds under another exemption, such as the federal wildcard exemption. 

Get Help From An Experienced Attorney
Bankruptcy law is complex. It varies from state-to-state, and even within a particular state every individual situation is unique. As always, working with an experienced bankruptcy attorney is highly recommended. Failure to submit a bankruptcy petition accurately or completely can result in a dismissal. At Sirody & Associates we work closely with each of our clients to understand the details of their personal finances and to protect as many of their assets as possible. If you feel that bankruptcy is the best option for your individual financial situation, our experienced attorneys will guide you through the process and help you make a fresh start. Contact us online for a free consultation or call (410) 415-0445.