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Bankruptcy with an Eight Figure Salary?

We have previously written about celebrity bankruptcy. Reviewing specific cases may prove illustrative for our Massachusetts bankruptcy clients. For example, basketball superstar Antoine Walker earned in excess of $100 million in his basketball career. Nevertheless, he recently filed for personal bankruptcy protection.

Why? How did this happen?

Walker blames the real estate recession that began in 2008. He claims that he personally guaranteed numerous real estate mortgages with more than one half dozen banks and that when the recession hit, he couldn’t afford the mortgages. He also admits to supporting others who he should not have supported: the proverbial hangers-on. One wise comment the superstar made to the press was that professional athletes should focus on their career, and invest their monies later, when they had the time to focus. A television documentary on ESPN, called “Broke” examines Walker and other broke former superstars.

How can we translate this into advice for our Massachusetts bankruptcy clients, who don’t have salaries in the millions, lucrative advertising contracts and a half dozen banks willing to finance their real estate mortgages? Simple: focus and don’t over commit to an elaborate plan.

For example, the two biggest investments for most folks are their home and their retirement plan. The home is simple; you buy it, you maintain it; you pay off the mortgage; you retire in it debt free! You can usually keep you home in personal bankruptcy, using up to $500,000 in the Homestead Act exemption. The 401k or retirement plan is more complex. However, the 401k plan is also exempt from the bankruptcy trustee powers! The 401k plan is new, historically speaking, and it requires long term planning, an understanding of finance, and perhaps most of all, patience in executing the plan.

Studies show that all income classes are more worried about managing their 401k and retirement accounts then ever before. However, the 35 to 49 year old age group expressed the most anxiety, according to a Pew Research report. And for good reason: their inflation adjusted net worth fell 56% in the first decade of the millennium! This includes housing and retirement plans. By contract, the next older class, those from 55 to 64, lost only 22% in the recent Great Recession. While this makes sense: the older class had more likely paid off more of their homes, the result is a creation of much financial anxiety among those approaching their 50s today.

It is important to plan, which Antoine Walker neglected to do. It is important to save and invest conservatively, which Mr. Walker neglected to do as well. And it is important to diversify: having all of your retirement nest egg in a house, or the stock market, has proven too risky. And when contemplating personal bankruptcy, like Mr. Walker or like the thousands of Massachusetts clients we have counseled, it is important to know your rights and to undertake proper bankruptcy planning.

A review of our website shows you the assets you may keep in a personal bankruptcy. They include the home, where you live, and your ERISA protected 401k and other retirement assets. If you need to undertake bankruptcy planning, call Attorney Neil Burns, at 617-227-7423 for a free Massachusetts bankruptcy consultation.