Special Issues in Gray Bankruptcies

Adverse economic conditions have combined to drive up over-55 bankruptcy filings 65 percent since 1991. Many people in this age group financially support their children, at least partially. Furthermore, once-generous government and charitable social welfare programs aren’t nearly as generous anymore. The icing on this unpleasant cake is persistently-high inflation and interest rates. All these conditions are expected to last into the foreseeable future.

These bankruptcy filings involve some special emotional and financial issues that only an experienced Chicago bankruptcy lawyer can handle. The bankruptcy process includes much more than filling in blank spaces on paperwork. Attorneys strategically file papers that maximize your fresh start. Furthermore, only an experienced lawyer stands up for debtors in meetings and adverse proceedings.

Government Benefits

We’ll start with an easy one. Under state law, most government benefits, including Social Security benefits, are 100 percent exempt in Chapter 7 and Chapter 13 bankruptcy cases. This exemption might be the most important one for debtors over 65. Many of these debtors depend almost exclusively on Social Security to make ends meet.

We usually tell these debtors to separate exempt government benefits from nonexempt wages and other such income. To avoid possible bankruptcy fraud charges, don’t move money without first talking to a Chicago bankruptcy lawyer.

Retirement Accounts

401ks, IRAs, and even 529 college savings plans are usually exempt as well. However, these exemptions are a bit more complicated, mostly because of the aforementioned fraud possibility.

Before we go further, we should touch on bankruptcy fraud. Transactions, like moving money between accounts, are presumptively fraudulent if they happened within 90 days of a bankruptcy filing. The trustee (person who oversees a bankruptcy on behalf of creditors) could file fraud charges in other situations as well. The allegations are just harder to prove.

Some people try to take advantage of the retirement account exemption. They set up these accounts and then file bankruptcy, or they make large deposits into these accounts and then file bankruptcy. That technique usually works unless, as is usually the case, the trustee scrutinizes deposit records. Then, the jig is up, and harsh penalties usually follow.

Such shenanigans might be unnecessary. Many states have wildcard exemptions which allow debtors to protect otherwise nonexempt property. Illinois is one of the few states with a wildcard exemption that could apply to any property, including cash.

Home Equity

Many older adults have considerable home equity. But the home equity exemption is only $15,000 ($30,000 for married owners filing jointly).

Don’t let those low numbers alarm you. Equity is the home’s current fair market value minus the loan value, if any. A home’s current fair market value is usually much lower than its listed value. A “we buy ugly houses” company usually offers pennies on the dollar for a quick, no-inspection sale. In many cases, a Chicago bankruptcy lawyer may use this much lower value on Schedule A, and bypass the low exemption amount issue.

Other loopholes may be available, such as a tenancy in common. If a non-filing spouse is a tenant in common, the law shields all home equity, regardless of the amount.

 Work With a Savvy Cook County Lawyer

No matter what kind of financial problem you are having, there’s usually a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

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