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Tuesday, November 1, 2011

Financial instruments and accounts that provide protection from creditors

Creditors are limited by laws that protect consumers even if those consumers are late on their bills or are sued for liability compensation. Examples of these laws are state statutes of limitations, and federal credit protection laws such as the Consumer Credit Protection Act.

Despite consumer protection from creditors, these laws do not necessarily protect individuals from liens or seizing of assets by the Internal Revenue Service (IRS) or from specific court rulings.  Having said that, several types of financial instruments and accounts protect consumers from creditors allowing an opportunity to keep retirement savings safe from difficult financial situations. Another term closely linked to creditor protection is asset protection planning. This concept, and its relevance to creditor protection is discussed below.

Financial instruments that offer creditor protection



Homesteads are a type of property rather than a financial instrument, but they can also provide financial safety from creditors. Moreover, in some cases the homestead exemption provides asset protection for land 160 acres or less in size. Not all states allow the homestead exemption, so be sure to verify applicable laws before buying property for this purpose.


Attorneys at Law Unrah, Turner, Burke and Frees appeal to cost effective insurance solutions to asset protection. Namely, auto, and homeowners insurance are able to protect assets from liability lawsuits for less than asset protection insurance and in terms of creditor claims, term life insurance also provides more cost effective financial security. However, it is probably a good idea to keep in mind life insurance financial protection is limited. For example, although Title 11 of the U.S. Code does protect assets from creditors, the focus is beneficiaries or dependents and not owners.


Trusts are a type of legal entity used in estate planning and are often considered financial instruments used to protect assets. Cornell University Law School  describes Trusts as right to property via a fiduciary relationship i.e. not ownership but retention of rights of ownership. Several types of trusts exist, and an irrevocable asset protection trust combined with a limited liability corporation provides enhanced asset protection. Several kinds of Trusts can be used for protection according to the Law Office of Janet Brewer. Moreover, of those discussed are Qualified personal residence trusts, irrevocable life insurance trusts and inter-vivos qualified terminable interest property trusts.


Individual Retirement Accounts or IRAs are another financial instrument that protect consumers from creditors. However, according to the New York Times,  in the event of bankruptcy, funds in an IRA are only protected up to one million dollars with the exception of rollovers from corporate retirement plans. The New York Times also refers to difference in state law exemption amounts for non-bankruptcy lawsuit protection. In other words, how much monetary protection provided by an IRA varies between states for creditor claims not associated with a bankruptcy filing. 


Defined contribution plans such as 401(k)s and 403(b)s are protected by the Employee Retirement Income Security Act (ERISA). However, these types of accounts are not necessarily protected against Qualified Domestic Relations Orders (QDROs) which are judicial claims against retirement assets during events such as divorce proceedings. Moreover, according to the Wall Street Journal, a kind of 401(k) called the Solo 401(k) is not protected from creditors in every states.


  1. Asset protection refers to a set of legal techniques that protect a person's property from creditors and judgments. While there have always been protective measures available to persons to protect their assets, there has never been as great an interest in asset protection until recent years. asset protection

  2. Nice & Informative Information.Financial planning is the process of making plans to achieve monetary goals. Financial Planning is a Proper Way to Manage Your Money. Financial Planner Helps You Defining Your Goals, how to make a Plan. Holborn Assets