Even the best people have bad things happen to them. You don’t need to be negligent or irresponsible to have debt and expenses threaten your investments. Thankfully, there are a few steps you can take to protect your assets from debt collectors.
Take out Life Insurance or Use Annuities
Many of the strategies we will explore in this article only work well in some states. This is one of them. Many states offer significant protections to assets in cash value life insurance policies or to annuity balances. For example, Oregon offers protection of your annuity income for up to $500 per month, while Florida has unlimited protection for these assets. For specific exemptions, check with a lawyer licensed in your state to find out what the specific laws are in your area.
Use Retirement Accounts
ERISA-qualified retirement plans have unlimited asset protection under federal law. And, in the event of a bankruptcy, up to $1 million in your IRA is protected. Though some states exempt a lesser amount by opting out of the federal bankruptcy exemption in the 2005 Bankruptcy Reform Act, some states have even more IRA protections. Find out how much protection is available to funds in these accounts by checking your state laws. Consider moving cash you will not need until you are in your 60s into these protected entities if your state has generous exemptions.
Use Business Entities
You must separate your business assets from your personal assets if you are an entrepreneur of any kind. A simple business debt or dispute could cost you everything if you fail to take the right legal steps to create a limited liability company, limited partnership, corporation, or another separate business entity. Avoid sole proprietorships because they have no limit on your liability. General partnerships are similar, only you then also have a business partner’s risk that you take on, and you could lose everything if they screw up in their personal life.
Check Home Equity Laws in Your State
When looking for info about debt relief, explore the home equity laws in your state. In some cases, even if you declare bankruptcy, the state will protect your home equity from creditors. State law protects an unlimited home equity amount in Florida and Texas.
On the other hand, you have little protection in other states. Consider putting extra money into your mortgage payments if your state allows you to keep your home after declaring bankruptcy.
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