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Book Lets You File for Bankruptcy by Yourself

Q: I am in debt with no hope of getting out from under all my obligations and am considering filing for bankruptcy. How does one go about doing this? Is it a viable option, or will it hurt me in the future? Is there a book that would describe the steps in the bankruptcy process? --H. K.

A: Personal bankruptcies, an increasing fact of life, are a time-honored way for overextended debtors to wipe the slate clean and start their economic lives over. However, they carry a considerable downside: social stigma, financial disgrace and a significant black mark on your credit rating.

Perhaps the best discussion of the issues and processes surrounding bankruptcy filings is in the book “How to File for Bankruptcy,” published by Nolo Press in Berkeley. The $24.95 book contains all the work sheets you need to assess whether you should file for bankruptcy and what type of bankruptcy you should seek. Furthermore, the book offers all the forms you need to handle the bankruptcy filing yourself.

The book is available in most bookstores or can be ordered directly from Nolo Press by calling (800) 640-6656 in California and (800) 992-6656 outside California.

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How to Learn More About Medicaid Trusts

Q: A recent article in the paper discussed Medicaid trusts as a way of protecting your assets from being wiped out in the event that a spouse needs long-term, costly medical treatment and nursing home care. Our attorney has never heard of these and doubts that they are legal. Can you give me more information I can pass along to our attorney? --G. G.

A: Although Medicaid trusts are stirring up controversy, they are still a relatively obscure subject, even among attorneys who might be expected to know about all the ways senior citizens can shelter their assets from the long reach of Uncle Sam.

In general--and this is only a sweeping and cursory overview-- Medicaid trusts allow high net worth taxpayers to qualify for Medicaid assistance.

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Here’s how they work: Taxpayers put their assets--the holdings that would prevent them from qualifying for Medicaid assistance--into an irrevocable trust that gives them the right to tap only the income from those assets. In return, the taxpayer qualifies for public assistance from Medicaid.

Many legal experts caution taxpayers against the trusts, noting that they are forever giving up the right to their assets. The trusts also can limit a taxpayer’s ability to give the holdings to heirs, experts add.

For a thorough discussion of the trusts, you can read “Avoiding the Medicaid Trap” by Armond Budish, published by Avon Books and “How to Protect your Life Savings from Catastrophic Illnesses and Nursing Homes” by Harley Gordon and Jane Daniel.

Owner Can Get Keogh Break on Just 1 Firm

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Q: I would like to take full advantage of the 403 (b) tax-deferred savings plan offered by my employer that would allow me to set aside about $9,500 per year. I also have a consulting business on the side, for which I have set up a Keogh plan that would allow me to set aside up to $30,000 of tax-deferred income. Are these two plans independent of each other, and may I therefore set aside up to $39,500 each year on a tax-deferred basis? What if I set up a second business--would I be entitled to another Keogh deduction of up to $30,000? --F. E. S.

A: The 403(b) tax-deferred savings plan offered by your employer and the Keogh plan you established for your consulting enterprise are entirely separate and you may make contributions to both independent of the other. Based on the figures you’ve provided, that means you could contribute up to $39,500 on a tax-deferred basis to the two plans.

However, if you were to set up a second private business, it would be considered to be operated by the same principals as your consulting business, and you would not be entitled to a second Keogh contribution.

Death Brings Murky Condo Tax Situation

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Q: My mother bought a condo in 1976 for $15,000. It was worth about $45,000 when she died this year. She purchased the unit with her money, and I never lived there. However, both our names are listed as owners. Now I have inherited the condo and am wondering if I will have a capital gain when I sell it or if it is part of my inheritance. My tax man doesn’t know the answer. --J. J.

A: Our tax man says it depends on how you and your mother were listed on the title to the condo. If you were joint tenants, then the condo is entirely included in your mother’s estate--and is thus entitled to a complete step-up to its value on her date of death.

However, if you were listed as tenants-in-common, the condo would be considered only half in your mother’s estate and half yours. The half in the estate would be entitled to a step-up in value, and you would be liable for a capital gain on only the half in your name.


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