According to the American Bankruptcy Institute, about 1.6 million people filed for personal bankruptcy in 2010. Sixty five percent of filers chose “income reduction” as a reason for filing. If you file, your FICO credit score will definitely take a hit. For instance, you can expect a reduction of up to 240 points if you have a 780 score and a reduction of up to 150 points for a 680 score.
What and how much someone in bankruptcy keeps depends mostly on where he or she lives. Here are five assets that may be protected in bankruptcy:
- Home: Holding on to your home depends on the state you live and the equity in your home. In general, if the owner has no equity, he/she can keep it as long as payment stays current. For filers with equity, most states have an exemption – money from the trustee sale of the home stays with the homeowner. Any amount over the exemption amount is applied to debts.
- Tax exempt retirement fund: Most are out of reach of creditors. IRA’s are protected up to $1.17 million per person.
- Car: Holding on to a car depends on several factors, including what’s covered by state exemptions. Like homes, owners who owe more than the car is worth can keep it provided payment stays current.
- Life insurance policy: Term insurance policies are exempt.
- College Saving Plan: Depends on several factors. If a 529 plan is less than two years old, protection is only limited to $he 5,000. After the two year limit, the plan is safe provided the person filing for bankruptcy isn’t the beneficiary.