Buying a House w/ Exempt funds pre-BK7? Yes or No?

[willdufauve]

The scenario is this: $150k+ medical and CC debt, and a break even (not yet underwater) house that I can't afford to pay the property taxes on but can't sell in a totally dead market. One ongoing creditor suit that I'm successfully opposing in court pro se. Soon I will BK7.

My question: I have a 401a defined benefit plan deferred annuity that I can take in a lump sum to pay cash for a small affordable house I have my eye on. It's very important to me to own a house, not rent, and I will need someplace to go. If I walk on the mortgage on my unsellable current house and let it foreclose, then use the exempt 401 money to buy my place to live (pre or during BK), can house #2 become my exempt homestead for the BK7 ? Or, will the trustee want to take house #2 purchased with the exempt funds as an asset, investment property?

I'm not trying to game the system; one needs a place to live and I hope to provide for myself using the exempt funds. Anyone have similar experience, case law, rulings? Thanks. Happy New Year!

[Charlie777]

If the funds are exempt and you can pay cash, why not finish the BK7 then buy the house? You're adding a lot of additional risk trying to do what you propose.

Remember your tax exposure on the 401a. You may not have the entire balance available if taxes are taken out of your withdrawal, and you will have to pay taxes AFAIK.

[frogger]

If you're planning a Chapter 7 bk, you should never exchange exempt funds for something that will not be exempt.

[willdufauve]

Remember your tax exposure on the 401a. You may not have the entire balance available if taxes are taken out of your withdrawal, and you will have to pay taxes AFAIK.

Good point Charlie. The pension fund will hold back 20% for taxes and we're retired/low income for 2011 so we might get it back on next years refund. You all make good points though and, bottom line, I have to agree with what frogger is saying. Thanks.