BK, IRS & Inheritance....

[rhinos77]

In June we filed for Chap 7, in July my wife's father passed away. We found out the amounts of her inheritance last week and we had our first meeting with the trustee today. We told him we were expecting an inheritance when he asked the question. He told our lawyer to put him in touch with the lawyer handling the inheritance/probate.
Our total debt is about 60K...45 to the IRS, the rest in unsecured.
My wife's inheritance will be about 80k from an IRA and 30K from a trust. We know the IRA is taxed as income so we'll have to pay about 22K in taxes next year for that.

Can we withdraw the filing and then go about paying our creditors?
(I know the trustee may not allow that because our word is not a good enough guarantee that we'll pay)

If the IRA stays in my wife's name and not cashed in, can the trustee still get it?

We'd love to be able to withdraw the filing, (we know it will still be on our CR), and then negotiate and pay our debts...what's the downside/upside??

Thanks in advance for any help...

[BassBoy]

You can withdrawal a BK filing.

The only affect it will have is that the BK filing will remain on your credit reports and the accounts included may need to be corrected to show paid instead of Included in BK.

The upside is that you've made good to repay your debts and that will look better in the long run.

[Yankeegirl]

Check with the Custodian of the IRA (probably bank or mutual fund). They may not allow your wife to retain the IRA in her name for very long. Many require the beneficiary to take full payment of the account over 1-5 years. It will remain tax deferred until payment is recieved and then taxed as ordinary income in the year of distribution.

I'm not sure how the the trustee will view this account. Technically, it's exempt as long as it's an IRA. I would contact the custodian and determine what your options are in terms of leaving the money in the account for as long as possible.

[keepmine]

The trustee does not have to allow you to dismiss your bk. Once you file, all assets are the property of the estate and are controlled by the trustee. With these sorts of assets, I'd doubt if you'd be allowed to withdraw.

[chloe0724]

Options for the Non-Spouse Beneficiary
Assume that you're not the surviving spouse of the deceased IRA owner, but this person was kind enough to name you as the beneficiary of the IRA. Now what happens?

IRA Owner Dies After Required Beginning Date
If the IRA owner had already begun to receive minimum required distributions, the remaining distributions generally must be paid out at least as rapidly as they would have been under the method of distribution in effect before his/her death.

This means that the options available to you are limited, because you generally can't lengthen the distribution schedule selected by the IRA owner on his required beginning date. Instead, with a few exceptions, if the IRA owner was receiving distributions over your collective life expectancies on the required beginning date, you must continue to take distributions over this period. If the IRA owner was recalculating the life expectancy each year, you must take the distributions over your own life expectancy (since the life expectancy of the IRA owner is now, sadly, zero).

If, on the other hand, the IRA owner was receiving distributions over his own single life expectancy (whether or not recalculated), the IRS has ruled that you can take distributions over your own life expectancy.

IRA Owner Dies Before Required Beginning Date
If the IRA owner dies before the required beginning date, you have a few more options. The general rule is that the entire balance of the IRA must be distributed under the five-year rule discussed above.

But, you can take advantage of an exception to the five-year rule and elect to receive distributions over a period not exceeding your life expectancy -- a better option for most people. If you decide to take this option, it's vital that you elect a method of distribution and that you take the initial distribution by the end of the year following the year of the IRA owner's death. Why? Because, unless the IRA agreement provides otherwise, distributions to a non-spouse beneficiary must be made under the five-year rule if no election is made. If you fail to make the election and take the appropriate distribution at the appropriate time, you'll lose this option and will be required to take distributions using the five-year rules. In effect, if you snooze, you lose.

One option not available to non-spouse beneficiaries is rolling over the inherited IRA account into an existing IRA they own. (Only spouses have this option, and we'll discuss it in a bit more detail below.) If a non-spouse beneficiary does roll over the inherited IRA into his or her own existing IRA, the rollover is treated as a distribution, and the proceeds must be included in the beneficiary's income in the year the rollover occurs.