culkinlaw.com Bankruptcy Blog

The goal of  a successful bankruptcy is to keep most (or all) of your assets as possible while getting rid of most (and hopefully all) of your unsecured debts (credit cards and medical bills).

In order to properly file for Bankruptcy, you must disclose all of your assets to a Trustee.  In order to protect and keep those assets a Connecticut Lawyer would have to claim the proper exemptions.

Connecticut is one of about 16 states (and D.C.) that allow a debtor to choose between the Connecticut list of exemptions and the federal list of exemptions.

Some of the major Connecticut Bankruptcy exemptions are as follows:

1. Homestead Exemption - protects up to $75,000 of your home’s equity per person filing.  *C.G.S. Section 52-352b(t)
2. Insurance – there are very specific exemptions that will cover many different kinds of insurance policies.
3. Alimony – to the same extent that wages are exempt *C.G.S. Section 52-352b(n)
4. Child Support – *C.G.S. Section 52-352b(h)
5. Furniture *C.G.S. Section 52-352b(a)
6. Motor Vehicle *C.G.S. Section 52-352b(j) (This is a limited exemption)
7. Pensions - most pensions and 401K type instruments are exempt
8. Wedding Ring & Engagement Ring - *C.G.S. Section 52-352b(k)
9. Public Benefits - there are very specific exemptions that will cover many different kinds of public benefits such as social security and unemployment.
10. Tools of the Trade – *C.G.S. Section 52-352b(I)& *C.G.S. Section 52-352b(b)
11. Wildcard - $1,000 of any property *C.G.S. Section 52-352b(r)

Of course there is also the federal exemptions which may be preferable as they allow a person to keep more actual money or other types of assets that are perhaps not covered under the Connecticut exemptions.

You should definitely speak to a Bankruptcy lawyer to determine which set of exemptions would be best for you.

1.     I will lose everything including my Home  if I go Bankrupt

This is perhaps the biggest bankruptcy myth.  Bankruptcy is designed to PROTECT ASSETS not to lose them to your creditors.  A skilled bankruptcy lawyer will work with you to determine how to properly exempt most if not all of your assets.  For instance, in the State of Connecticut there is a homestead exemption which allows you to keep the equity in your home up to $75,000 for an individual filer and up to a $150,000 for a joint filer. There are similar types of exemptions for other assets such as your 401K, cars, furniture, etc.

As a result of all of these different exemptions, most chapter 7 cases are known as “no asset” cases meaning that you will actually keep everything that you have (except your unsecured debts).

2. I have to be completely broke to file Bankruptcy

Probably one of the biggest frustrations is when I meet a client for the first time that has borrowed on their 401K or re-mortgaged their home in an effort to pay their credit cards, medical bills or other unsecured debts.   In many instances, that same client would have been able to hold onto all of these assets if they had filed bankruptcy before they made the decision to invade their savings and assets.  Before you start draining your assets and borrowing money to pay your debts, see a bankruptcy lawyer.  Most bankruptcy lawyers will offer a free consultation that is always confidential.

3. I will lose my job if my employer finds out I filed for Bankruptcy

The Bankruptcy Code prohibits Employers from discriminating against you solely because you filed bankruptcy.

4. I heard that under the new 2005 Bankruptcy Code most people will not qualify for Bankruptcy

Not True.  The 2005 Act has made filing Bankruptcy a bit more difficult; however, most people are still able to qualify for a Chapter 7 Bankruptcy.

The new act imposes two thresholds for a person looking to file Bankruptcy.  These threshold tests are known as the “Median Income Test” and the “Means Test”.   The Median Income Test is used to qualify those who earn at or below the average income for residents of it’s State.  The Means Test is used for those who earn higher than the Median Income for their state.  Look for an upcoming post for more discussion on these two tests.

Finally, even if you fail these tests you still may be able to file for a different kind of Bankruptcy under Chapter 13 instead of Chapter 7.

5. I cannot get rid of Medical Bills.

Nonsense.  Medical Bills is perhaps as big of a reason to file bankruptcy as are credit cards.  Filing a Chapter 7 Bankruptcy will wipe out all of your “unsecured debts” which is exactly what medical bills are.  The sad truth is that sometimes serious illness can create an overwhelming amount of debt.  Before you start invading your savings and other assets to pay excessive medical debts, call a Bankruptcy Lawyer.

6. My credit will be ruined for several years if I file Bankruptcy

Filing Bankruptcy will definitely cause an immediate negative reporting to your credit but it can be rebuilt over time.  There are companies that in fact specialize in rebuilding credit after filing for bankruptcy.  Most people who file for bankruptcy  start receiving offers for new credit cards immediately and actually begin improving their credit rating within a couple of years following their filing.  The fact that you filed bankruptcy will remain on your credit report for 10 years under the Fair Credit Reporting Act, but its significance will diminish over time if you are following a disciplined plan to rebuild your credit.

The bigger question is what is more important protecting your assets or protecting your current credit rating?  This is a personal decision and should be explored as thoroughly as possible, starting by pulling a free credit report to see where your credit currently stands.