Asset Question about Savings Bonds

[keepsmiling]

I am preparing to file and still trying to get my head around what all this means for us. This forum is amazing-- thanks to all of you for your combined wisdom and comfort. I spend a LOT of time here nowadays, reading reading reading... but I haven't seen this question addressed yet.


I have quite a few very old EE savings bonds- not sure exactly as to value but probably over 9K. We are having some issues with getting a correct appraisal on the house- original comp came in ridiculously high-- but we may not be able to exempt the bonds depending on where the equity falls.

Since we want to keep the house (won't be able to rent anything for much less than we pay now) we may wind up forfeiting the bonds I really don't have any other assets.... curious as to how this works, exactly? do I have to cash in the bonds and then, to add insult to injury, pay tax on the interest?

Lots more questions coming soon...

[tcreegan]

Hi keepsmiling,

Did I read NJ BK exemptions right...no homestead, personal property to $1000...you've got to be kidding...

Thank goodness you can use the Federal Exemptions! I assume you need to know the equity so you can use the unused homestead exemption as a wildcard to exempt the bonds? Don't forget that there is a ~1K wildcard separate from the unused homestead, and that these get doubled for a joint filing.

curious as to how this works, exactly? do I have to cash in the bonds and then, to add insult to injury, pay tax on the interest?

This is a curious question...since the bonds are going into the BK estate, wouldn't the estate be responsible for the interest? Need one of our resident lawyers to weigh in here...

Tom in Colo

[backtoschool]

It is the trustee's responsibility to liquidate your assets if you become an asset case. The assets are sold and liquidated and turned into cash. The cash from the sale/liquidation of the assets is then put in an account, and checks are sent to your creditors who have filed a claim by the due date, based on the priority of the debt and the percentage of your total debt that is owed to them.

I am not sure about the tax implications since the bonds will no longer belong to you. That is something that perhaps justbroke or hhm can address.

[keepsmiling]

bumping in case anyone has anything to add to this.

[debee]

The bankruptcy estate that is created when you file bk is a separate taxable entity. It will have to pay taxes on any income it generates (from disposing of your nonexempt assets) after deducting its expenses and its standard deductions. So whatever asset doesn't pass back to you (via abandonment or exemption) becomes the trustee's problem. You won't have to pay taxes on the interest income.

eta: but I hope you can find a way to exempt the bonds after all.
eta, encore: you can read about the process in IRS pub 908, especially pages 4-7 http://www.irs.gov/pub/irs-pdf/p908.pdf