Effective Asset Exemption Planning

When placing assets out of the reach of creditors, the primary strategy centers on most effectively using the asset exemptions allowed under federal and state codes. This exempted property is declared untouchable in the eyes of the law, should you find yourself in the undesirable position of having a creditor's lien liquidating your assets.

Every state has a list of assets considered "exempt" from legal judgments and unreachable by creditors. The federal bankruptcy statute also has its own list of exempt assets, although in some states you may substitute your state's exemptions for the federal ones in a bankruptcy action.

States Allowing Choice of Either Federal or State Exemptions
Alaska	Arkansas	Connecticut	District of Columbia
Hawaii	Kentucky	Massachusetts	Michigan
Minnesota	New Hampshire	New Jersey	New Mexico
New York	Pennsylvania	Rhode Island	Texas
Vermont	Washington	Wisconsin

If you reside in one of these states, you should examine both your state's post-judgment asset exemptions and the federal bankruptcy exemptions, in comparing your inventory of assets to the exemptions.

In the other states, you can only use your own state's post-judgment assets exemptions in a bankruptcy proceeding, although certain federal exemptions, such as those related to pensions, are allowed in all states. These states have opted out of the federal exemption system. Remember, too, that in a state court proceeding, only your state's post-judgment asset exemptions will be available.

To effectively plan for maximum asset protection, you'll need to understand the limits of exempt asset status and know your asset exemption options.