In bankruptcy, each state has its own bankruptcy exemption laws. Therefore, a certain amount of real estate assets of a debtor can be exempt in accordance with the state’s bankruptcy exemption laws. Furthermore, federal law also provides a certain set of bankruptcy exemptions. The Bankruptcy Codes Chapter 7 and Chapter 13 describe the exemption provisions. Generally, Chapter 7 aims at determining the extend of relaxation on property rights whereas Chapter 13 helps the debtor to plan the payments extension.
The US Congress modified the bankruptcy laws and regulations in 2005. Under the new laws, virtually all retirement plan accounts and pension fund plans are exempted if the debtor files for Chapter 7 bankruptcy. Similarly, in Chapter 13 bankruptcy, the debtor’s retirement accounts are exempted.
ERISA qualified pension plans such as 401(k)s, 403(b)s, IRAs (Roth, SEP, and SIMPLE), Keoghs, Profit-Sharing Plans, Money Purchase Plans, and Defined-Benefit Plans are exempted under Chapter 7 bankruptcy. However, these exemptions are not absolute in all cases. This broad rule limits the exemption in IRAs and Roth IRAs to $1,171,650 per person. If the debtor has more volume of fund in his/her pension plans the bankruptcy court can initiate steps to pay back the creditors. This volume of money is modified every three years to match the increase in the living costs.
Although the volume of fund in a debtor’s retirement and pension plans are exempt, pension advantages that are compensated to the debtor as earnings are not exempted. Moreover, in a Chapter 7 bankruptcy, the bankruptcy court cannot take any pension advantages that are necessary for debtor’s assistance, but it could take amounts over and above the requirements of the debtor’s assistance to pay back his/her creditors. Any kind of pension earnings involved in a debtor’s reimbursement schedule and the exemption provision help to figure out the debtor’s unprotected financial obligations.
Bankruptcy does not mean that the debtor has to give up all of his/her property. Through exceptions, the debtor can retain a certain quantity of assets safe. Many exceptions secure specific types of assets, such as real estate, automobile, or a wedding ornament of the debtor. Sometimes an exception to this rule guards the entire value of the real estate asset. An exception to this rule depends upon the money value of an asset. Some exceptions, called “wildcard exceptions,” can be used towards any real estate asset owned by the debtor. In short, the exemptions are different in Chapter 7and Chapter 13 bankruptcy filing. A Chapter 7 bankruptcy is a liquidation procedure where the engaged trustee is looking to bid off the debtor assets to its creditors.