The other day I had to postpone someone’s bankruptcy filling because of issues involving their investments. When my paralegal had plugged in the information about the stocks, she forgot to multipy the share price by the number of shares to get a final value of the investment. Not so bad until I calculated the exemptions during our final review and found out that SURPRISE the majority of that stock was left wide open. Had I filled the petition, the Trustee could and would take those easily liquated stocks to benefit the creditors.
So, from the view of the lawyer or the prospective client what do you do? In the case of someone with a lot of easily liquated investments the first answer could be – file a Chapter 13, pay the value of the unexempted investments to the creditors over 60 months and you’re done. BUT…what if they cannot afford to do a Chapter 13 and they really looked at these monies as retirement funds? In that case it is time to plan the effective use of the exemptions and exclusions that Congress has so generously provided in the Bankruptcy Code. First, see if the clients can add to their IRA accounts or start new ones. Have them deposit the maximum value of the stocks into those wonderful retirement accounts and as long as each IRA is under a million dollars, they are home free. Next twist, what if there is still too much value in the stocks, even after the full IRA deposit for the year has been made? Then you can look at buying a small amount of life insurance. You can exempt a little over $11,000 of cash value in a life insurance policy. If there is still too much value, there are several other exemptions that may be used to convert exposed assets to exempt assets.
Obviously this is something that should be examined at the very beginning of any representation. Clients tell your bankruptcy lawyer every investment you have, even the 5 shares of Napster that you bought on a whim. That way you can plan your exemption use and protect your future from your creditors. Taking care of this important aspect of pre-bankruptcy preparation should be done with the assistance of an experienced bankruptcy lawyer. If you need to find an attorney local to you, visit the NACBA website or contact us.