Maximizing Social Security and Other Asset Exemptions
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For many families, the Social Security benefits exemption is the most important property exemption in an Illinois bankruptcy. About 40 percent of Americans rely exclusively on Social Security benefits for retirement income. These benefits, along with VA disability, workers’ compensation, and most other government benefits are exempt in bankruptcy. The trustee (person who manages a bankruptcy for a judge) cannot liquidate exempt assets to pay debts.
The exemption is broad. A good Chicago bankruptcy lawyer, who knows the law and knows how to make it work for people, makes it even broader. Many obscure loopholes expand the listed exemptions. Furthermore, a Chicago bankruptcy lawyer helps families make the right financial moves which protect their benefits. Non-lawyer bankruptcy petition preparers cannot give legal advice in this, or any other area. BPPs are basically typists who fill out forms.
Social Security Exemption
Social Security benefits are exempt, but other kinds of income, such as wage income and passive income, are not exempt. If a debtor deposits exempt and non-exempt funds into the same account, the trustee often seizes the account, forcing a Chicago bankruptcy lawyer to argue the matter in court.
Putting exempt money, like government benefits and 401(k) withdrawals, into a separate account solves this problem. However, debtors should tread lightly in this area. Such financial moves could be construed as evidence of bankruptcy fraud.
We should dwell for a moment on the exemption itself. Many Illinois property exemptions are value based (e.g. $15,000 of home equity and $2,400 of vehicle equity). The Social Security exemption is item based. These payments are exempt regardless of their value. Other time-based exemptions include government benefits and retirement accounts, if the retirement account was earned, not inherited.
These issues are increasingly common in bankruptcy as the average filing age continues to climb. In the 1990s, almost no one over 65 filed bankruptcy. Today, this age group represents a significant chunk of bankruptcy debtors.
Home Equity Exemption
We mentioned the $15,000 home equity exemption above. If Social Security benefits are a concern, most likely, you have more than $15,000 in home equity. Fortunately, the aforementioned loopholes often come into play.
Setting the correct value is one example. Younger filers who have little or no equity in their homes typically use the value posted on the county tax appraiser’s website. Thus value is inflated, and often heavily inflated, especially for older homes.
The tax appraiser value only considers the intrinsic value of the house and land. Normally, these values ignore market conditions. Older homes usually sell very poorly in down markets, a fact that often punctures their fair market value.
Additionally, the tax appraised value, wait for it, determines the amount of taxes owed. Obviously, the county wants to set the value as high as possible, to collect as much money as possible.
Frequently, a lawyer partners with a real estate professional to set a home’s fair market value. Furthermore, the Schedule A value is the as-is cash value. Many older homes need substantial work and, if sold as-is, are worth a fraction of the fair market value.
Work With a Dedicated Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. The sooner you reach out to us, the sooner we start working for you.
Source:
nirsonline.org/2020/01/new-report-40-of-older-americans-rely-solely-on-social-security-for-retirement-income/