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Are There Cases Where You Recommend That Your Clients Not File For Bankruptcy?There are circumstances that bankruptcy will not be a viable option for you. For example, if you were to enter a Chapter 13 plan and find that you must pay your creditors 100% of the debt, it wouldn’t be a feasible plan, so the court wouldn’t confirm it. A Court could determine that the Plan is not feasible and rule that the Chapter 13 Plan can not be confirmed.

Another common circumstance arises when the primary debts of the individual are non-dischargeable tax debt and domestic support obligations. The costs and expense of filing a case would can defeat the primary objective of discharging debt to be achieved by completing the case. Additionally, when a temporary increase in income is received as a result of an annual bonus, it may be advantageous to delay filing for bankruptcy. This strategy is  recommended to attempt to satisfy the means test of Chapter 7 affected by the sudden increase in income. These bumps in pay may arise from bonuses or withdrawals from retirement accounts that are taxable income..

If you lost your job but received a severance package, this payment would be considered ordinary income and may affect the timing of the filing of your potential bankruptcy case.

How Much Debt Should I Be In When Filing For Bankruptcy?

That number will vary for everyone based on the facts and circumstances of their case. As a general consideration, you should have at least $20,000 in unsecured debt for bankruptcy to be considered.

If you have filed a prior Chapter 7 Bankruptcy case and received a discharge, you must wait eight years from the filing date of the prior case to submit a new case. This consideration is significant because an unexpected adverse financial life event could wreak havoc on your finances. No exceptions are made for this timeframe. That is why it is vital to ensure that the decision to file bankruptcy is a legitimate option.

Are Term Life Insurance Policies Considered Assets For The Purposes Of A Bankruptcy?

Although a life insurance policy is considered property of the estate, it is exempt from the bankruptcy estate. Term life insurance policies have no actual cash value since the policyholder is alive and the interest is unmatured, so they are not considered a financial asset with a specific dollar value in bankruptcy cases.

The Bankruptcy Code does provide an exemption for what is characterized as an unmatured insurance policy under 11 USC 522(d)(7). The ownership of a term life insurance policy must both be disclosed and exempted on the Bankruptcy Petition

Whole life insurance policies accrue an increase in financial value year to year as future premiums are paid. The premiums for these policies are more expensive than term life insurance policies. This is because these policies function not only as an insurance policy but also as a financial  investment. The value of the accrued interest in the policy can be exempted  under 11 USC 522(d)(8), up to a limit of $14,875 in the cash surrender value. The whole life insurance policy death benefit is also exempt subject to the specific dollar amount that can be claimed under the Bankruptcy Code.

When clients own whole life insurance policies, they must provide a copy of a current statement showing the cash surrender value of that policy. The bankruptcy lawyer can assert the applicable exemption. If the policy has cash value more than $14,875, then we evaluate if there are any other available exemptions.

In New Jersey, the death benefit exemption doesn’t have a limit provided that the policy beneficiary is not the debtor, the debtor’s estate, or the debtor’s trust.

How Are 529 Uniform Gifts To Minor Accounts Disclosed In A Bankruptcy Case?

The bankruptcy petition contains a section called Statement of Financial Affairs. You have to disclose any property that you’re holding for another person – including 529 Savings Plans  and Uniform Gifts to Minors accounts.

Minor children are typically the designated beneficiaries of 529 college savings plans, uniform gifts, or uniform transfers to minor accounts. These 529 plans have specified conditions they must satisfy in order to be exempt from the administration by a bankruptcy trustee:

  • The funds must have the status of a true 529 uniform gifts or transfers to minors account, where the parent is essentially the custodian for their child.
  • The beneficiary must always be a child, stepchild, grandchild, or step grandchild of the account’s custodian.
  • Contributions made more than two years before the bankruptcy filing are fully exempt but can be examined to determine if made fraudulently while insolvent.

Get Information on Cases Where Bankruptcy Filing Is Not Recommended; call Michael McLaughlin, LLC, for an initial consultation at (908) 373-8500 and get the legal answers you seek.

Michael McLaughlin, Esq.

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