Behm Law Group, Bankruptcy Attorneys

When you file for bankruptcy, every aspect of your financial situation and all of your income and all of your debts are subject to review. Behm Law Group, Ltd. offers legal assistance and counsel in navigating the bankruptcy code for our community’s individuals and small businesses filing for bankruptcy in Mankato, MN.

Changes to the bankruptcy law in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) made a big difference in how a bankruptcy filer’s monthly income sources, monthly living expenses, debts and assets are analyzed in both Chapter 7 and Chapter 13 bankruptcy cases. If you are considering filing for bankruptcy, the current law requires that all of these aspects be accurately determined before a case is filed. When it comes to annuities, pensions, and retirement plans, the 2005 BAPCPA changes may help one determine one’s long-term options for one’s financial future after bankruptcy.

Understanding Annuities

Even if you own an annuity, it may not be fully clear how that account works or what type of annuity it is or what taxation rules apply to it. Annuities are investment accounts that regularly pay specified amounts to the owner from the total lump sum of money originally deposited in the account. The installments from an annuity are commonly scheduled to be paid out on a monthly basis, but they can also be paid out on a weekly or yearly basis.

Annuities are designed to help manage large amounts of money, safely containing the sum and providing a fixed income stream to the beneficiary of the annuity account. Common annuity accounts contain retirement funds, proceeds from insurance claims, proceeds from lawsuit settlements, and lottery winnings. The payments of an annuity can be made immediately upon the setup of the account or they can be deferred to start after a set period of time.

Annuity Exemptions in Bankruptcy

If you file for bankruptcy and you own an annuity, the annuity may or may not be protected by the bankruptcy exemptions.  Depending on the type of annuity involved and depending on the rules of taxation that apply to it, the following could apply:

1. First, your annuity may qualify for exemption from the case. Because an annuity is a source of income, it becomes an asset in a Chapter 7 case. If your annuity is exempt, you may keep that account and protect the value from liquidation to repay creditors. If you file for Chapter 13 and can exempt your annuity, the value of that account may not factor in calculating the amount you will pay back to unsecured creditors in your repayment plan.
2. Second, your annuity may not qualify for exemption from the case. This means the value of the account will be used to repay creditors in a Chapter 7 case, and in a Chapter 13 case, the account value will play a part in determining how much you will have to pay back to your unsecured creditors in your repayment plan.

Federal exemption laws allow the immediate exemption of tax qualified retirement plans and offer a Wildcard Exemption of potentially up to $13,200.

Whether your annuity qualifies for exemption when you file for bankruptcy in Mankato, MN, depends on a number of factors. To learn more about how your annuity will be handled in bankruptcy, contact Behm Law Group, Ltd. at (507) 387-7200 today.