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Does Bankruptcy Protect Assets and Income

Bankruptcy is Federal Law, and when a person files for bankruptcy protection, the Federal Bankruptcy Code and Rules come into play. It has long been settled law that when a state has a law, and the federal government has a law, and they are on the same issue, the federal law will supersede and control. This is often the case with the Bankruptcy Code, as there are many laws within our Bankruptcy Code that have been written to afford protections to a person or a company. This is often significant when a person has defaulted on a contract or a promise to pay, or if a person is being sued, or is at risk for loss of property, income or other assets.
One of the very basic tenants and cornerstones of protection is the automatic stay. When a Bankruptcy case is filed the automatic stay is put into place. The automatic stay acts as a shield to creditors, and will prevent actions being taken against the person or entity that filed the bankruptcy case, unless the stay is lifted by a bankruptcy judge after a hearing. The automatic stay applies in any chapter chosen. Though powerful and useful in protecting assets and income at the inception of any bankruptcy case, the automatic stay has exceptions that have been written into the Bankruptcy Code over time, to offer other protections for groups or individuals who might be harmed with the filing of a bankruptcy case. An example of areas in which the automatic stay does not afford protections includes the dissolution of marriage, child support and spousal support. The automatic stay will not stop the family court from ordering the payment of support; protections may be afforded, however, for ongoing collection efforts for arrears that have accrued for either type of support. The automatic stay will not protect against a tax refund intercept for child support or spousal support (domestic support) obligations, in most circumstances. The taxing authorities are also afforded other intercept or set off potential for refunds, depending on the sum owing on the taxes, and the timing of case filing.
Another important concept in the Bankruptcy Code protections is the fiction of the bankruptcy estate. When considering how the automatic stay will work, and what it will protect, the definition of the bankruptcy estate is part of this analysis. The bankruptcy estate in its basic definition, is comprised of all of the assets and income of the Debtor, whether the Debtor is a person, persons, corporation or other entity. If a single case is filed, but the person is married, then the assets and income that would be community property are included in the filing spouses' case. This can afford protections to a non-filing spouse as well.
When a case is filed, due to the concepts of the bankruptcy estate, depending on the Chapter chosen, care and consideration must be afforded to the exemptions that protect assets within the estate. Assets are property owned by the person, or their spouse, or the corporation. There are several sets of exemptions that can be chosen in the State of California, including the federal and state exemptions. Exemptions are laws that define what is protected from creditor collections. The State of California has some liberal exemptions, affording protections for equity in a home between $75,000 to $150,000 depending on age, family status and other factors. Retirement accounts are afforded an exemption cap that is nearly unlimited. Bank account balances are also protected to a liberal extent as well.
The composition of assets and income often is a deciding factor as to which chapter is best in filing any bankruptcy case. Knowing the protections afforded a person filing bankruptcy to protect and shield assets, and allowing for either a fresh start or a reorganization is a powerful tool. It is a common misconception that people who file bankruptcy have to be depleted of assets. Although many people do not come to the juncture of believing that the bankruptcy is a tool that they need, until all of their assets are depleted. The savvy business people in our economy know that this is a misnomer, and not a necessary prerequisite to a person's eligibility to file a bankruptcy case. The most successful in our economy use the Bankruptcy Code, its protections for assets, income and the many laws that help to restructure or erase debt, to help to shelter and build their asset base before depleting all of their savings and investments before a Bankruptcy case is filed.

Evans Law in the Media

"We're having great results using the rule," said Brette Evans, a San Jose bankruptcy lawyer. In one recent case, a small-business owner was able to hang on to her home by setting aside a $240,000 second mortgage, she said.

mercurynews.com | View Article

Silicon Valley | Mercury News.com
NACBA National Association of Consumer Bankruptcy Attorneys ARAG US Legal Services | Providing Legal Benefit Plans Yelp The State Bar Of California

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