Your Asset Exemption Options

Now that we've introduced the concept of planning for asset exemptions--which are established by every state's laws and the federal bankruptcy code, in order to shield certain types of assets from being reached by unsecured creditors--it's time to explore strategies that take advantage of them.

This discussion focuses on ways you can exploit the most important asset exemptions common to most states, including:

• Homestead exemption, as well as the options to consider if this exemption is not available to you, or if you want to use a trust to protect the home
• Retirement plan exemption
• Wage exemption
• Annuity exemption
• Wild card exemption
• Tools of the trade and household goods exemptions

The focus here is a narrow one--comprehensive coverage of each category of asset exemptions offered by the states is unwarranted, as many categories yield unimpressive protection. (See the tables listing asset exemptions for each state, as well as the federal bankruptcy exemptions.)

A debtor must live in a state for two years to be eligible for a state's exemptions.

Also, we'll cover exemption doubling for spouses, what happens to the proceeds of the sale of an exempt asset, the effectiveness of changing of your residence, and converting secured debt into unsecured debt.

In addition, timing and motive are critical factors in avoiding creditor challenges to asset transfers.