Indiana Bankruptcy Lawyers Offer All-or-Something Advice – Part Two

November 10, 2012 4:50 pm Published by

Giving “all or something advice” gets to be a habit when it comes to offering Indiana bankruptcy help. That’s because people’s affairs are rarely “cookie-cutter”, whether they’re filing small business bankruptcy in Indiana or an Indiana individual bankruptcy case.


Indiana bankruptcy law begins with rules, but, in real life cases, there seem to be exceptions to every one of those rules.

One of the basic misconceptions about bankruptcy in Indiana is that you’ll lose all your assets.  That’s just not true.  Under Indiana law, in fact, you’re guaranteed the right to keep certain items so that you’ll be able to make a fresh financial start. 
 

As a longtime Indiana consumer bankruptcy specialist, I was asked to help create the section of the new bankruptcy laws of Indiana that deals in exemptions.  That’s precisely why I was so interested in a Kentucky woman’s bankruptcy case that one of my Bloomington bankruptcy lawyer colleagues called to my attention. (This attorney knows I go to great lengths to urge people not to tap the money in their retirement accounts in an effort to avoid filing bankruptcy in Indiana).

(You must remember that, in all five Zuckerberg bankruptcy law offices, we deal only in Indiana bankruptcy matters, and so I had no involvement in Deborah’s case:)

 

  • Deborah filed Chapter 13 bankruptcy.  Although she was eligible to participate in her employer’s 401(k), she was not making contributions.  However, every payroll period she was “docked” $254.71 towards a loan she’d taken out of the 401(k).
     
  • Deborah’s intention was, that as soon as the loan was paid off over the 60 months, she would keep making those $254.71 payroll contributions, but now they would go towards retirement.
     
  • The bankruptcy trustee objected on the grounds that Deborah should devote that money to her debt repayment plan.
     
  • Court ruled in favor of Deborah making the contributions, saying that debtors are allowed to exclude their retirement contributions from their disposable income.
     
  • A higher court reversed that decision, saying that debtors can exclude retirement contributions only if they were already making them before the bankruptcy.

There are two main lessons I believe we can learn from this story:

  • Money in retirement plans (such as IRA and 401(k) is best left alone!  Almost always, that money will be protected from creditors’ claims and can help secure the future after a debtor has emerged from personal bankruptcy in Indiana.
     
  • Consulting with an experienced Indiana bankruptcy professional at the very first signs of financial trouble allows more leeway.  Had Deborah been making contributions all along, in addition to the loan repayments, she might have been allowed to keep contributing.

The Kentucky story proves a point:  it’s usually all-or-something when it comes to filing personal bankruptcy in Indiana.  However, the sooner you begin to strategize and plan with the help of a bankruptcy attorney, the more “somethings” can be preserved for you!
 

 

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This post was written by Mark Zuckerberg

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