Retirement And Bankruptcy – Baltimore Residents Need To Know
If you are facing retirement and a large debt at the same time, the decisions you make are critical for your financial future. Sometimes unpaid debt due to medical bills leads to bankruptcy. Baltimore and Maryland law provide for these kinds of situations. Let’s see how you can cope with retirement and bankruptcy.
Medical Bills – Leading Cause
In 2013, unpaid medical bills were the leading cause of bankruptcy in the United States. Even though health care reform is happening, the cost of medical care remains high. For many, this is a source of financial hardship. Retirement makes things even more complicated due to fixed income status. If this sounds like your situation, you are not alone. A reliable attorney can help get things sorted out for you.
Retirement Account Protection From Bankruptcy
Whether you are filing for Chapter 7 or Chapter 13, almost all retirement accounts and pension plans are protected from creditors. These fall under the heading “exempt assets.” In general, the entire amount of your retirement accounts are protected including 401(k), 403(b), IRAs, Keoghs, profit sharing, money purchase, and defined benefit plans. Also, your Social Security payments are protected when you file for bankruptcy.
However, if your pension account is large, you might be forced to file for Chapter 13 which means you will have to make monthly debt reduction payments. With a fixed income, this might be difficult.
For IRAs the exemption limit is $1,245,475 per person. Any amount over this may have to be forfeited to pay creditors. This limit is subject to periodic modification to adjust for cost of living increase.
Protect Your Account
In some cases, creditors can withdraw money from bank accounts through garnishment. Even though Social Security funds are protected, there is no automatic identification of these funds in your bank account. One way to protect yourself is to open a separate bank account where your Social Security checks are deposited. Then notify creditors in writing about the nature of this bank account.
There can be some variability if you are filing for Chapter 7 or Chapter 13, however, there are some assets that are protected in nearly every bankruptcy case. You will likely be able to keep:
- Your home (see homestead exemption below)
- Insurance policies
- Personal property (appliances, furniture, clothing, etc.)
Retirement Benefits That Are Not Exempt
Although the bankruptcy law provides for many retirement account exemptions, some benefits are not exempt. For example, benefits paid to you as income might not be exempt. In Chapter 7 bankruptcy, amounts above normal living expenses may have to go towards repaying your creditors. In Chapter 13, the money may be put towards paying your debt repayment plan.
State Of Maryland Homestead Exemption
In Maryland, you may exempt approximately $23,000 of your home equity when filing for bankruptcy (exemption allowance is subject to change, so check with your attorney). If you have home equity over this amount it might be wiser to file for Chapter 13 instead of Chapter 7 and risk losing your home. An experienced bankruptcy attorney can help you make these complex decisions.
Disclaimer: This article is not meant to serve as legal advice. You should always consult with an experienced attorney for proper legal advice.
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