The Bankruptcy Estate -

     When a voluntary bankruptcy petition is filed, all of the debtor's assets come under the control of the court. These assets comprise what isknown as the "bankruptcy estate". Individual (as opposed to partnership or corporate) debtors are allowed to claim certain of this property as "exempt".

The Bankruptcy Estate

Exempt Property

     Exempt property is excluded from the estate, and retained by the individual debtor free of unsecured creditor claims and trustee control. Section 522 of the Bankruptcy Code lays out 12 different types of property that an individual debtor may claim as exempt. Please note that individual states are allowed to "opt-out" of the federal exemptions and establish their own exemptions, with certain limitations.


Retirement Plans

     Certain types of retirement plans contain clauses which, under the federal ERISA law of 1974, result in such property not even being considered to be property of the bankruptcy estate, and thus immune from creditor action. Pre-bankruptcy exemption planning, where nonexempt assets are converted into exempt form, is explicitly allowed under federal law. Some courts, however, disallow such transfers, claiming that they violate fraudulent transfer laws and are transfers made with the intent to hinder, delay and defraud creditors. Competent counsel should be consulted before this type of asset-protection strategy is pursued, to assure compliance with all applicable laws and the maximum legal benefit to the debtor.

ERISA - Qualified Retirement Plans are Not Property of the Estate

     Retirement plans which are properly qualified under the federal Retirement Income and Security Act of 1974 (ERISA), are not property of the bankruptcy estate and are not subject to creditor claims or seizure by the trustee. This is because they have explicit "anti-alienation" provisions which makes them federally-protected. Although they technically are not property of the bankruptcy estate, the better practice is to list the asset in Schedule B-Personal Property, and claim it as exempt in Schedule C-Property Claimed as Exempt, citing the U.S. Supreme Court decision of Patterson v. Shumate (1992), 504 U.S. 753. If the plan is not ERISA-qualified, it still may be exempt, under the exemption scheme of the applicable state.

Strategies for the Debtor

Written by Henry Rendler

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