341 meeting was easy, almost too easy...

[chucko]

My 341 meeting was very simple, only a couple minutes. I watched a bunch of others ahead of me and for the most part all were under 4 minutes. One guy had a coin collection that was asked about and another woman had a porcelin doll collection that was asked about.

I was asked for ID, asked if all things were true, if I had any insurance or inheritance coming, etc etc and that was all. Problem is I have a Roth IRA worth $22,000 that I am trying to keep completely exempt. He never asked about it and my lawyer handed him the latest statement as we were finishing up. Do I have any idea if I'm close to being home free or do I have to worry for 60 days whether or not they're going to take my IRA? Would the trustee have brought it up at 341?

[bkfiler]

congrats on your 341 being over - they mostly all are easy. its just a formality they go through. not much happens no matter what.

welcome to the 60 Day Club! go sign in (link in bottom of my signataure)

you wont know anything until 60 days or less. every trustee is different. your attorney told you if the IRA is exempt of not? what did he say?

if its not exempt then you can be sure the trustee will take it. that is how he makes his money.

[bkfiler]

i hope this article is true.


How the New Bankruptcy Law Affects Your IRA
August 15, 2005
By Debra Neiman, CFP

Under the new law, up to $1 million of the assets you hold in traditional IRAs and Roth IRAs, or a larger amount determined by the bankruptcy court, will be exempt from your bankruptcy estate.

What's more, IRA assets that came from an employer retirement plan rollover--such as a 401(k), 403(b) or profit-sharing plan--won't be subject to the claims of your creditors, regardless of the state in which you reside or the value of your rollover assets and their subsequent growth.

[chucko]

Problem is I filed under the old laws, which did not specifically exempt a Roth IRA. My lawyer didn't know, and niether did 3 other lawyers in town who I spoke to before retaining my guy.

Many retirement accounts are exemplt, but the Roth is so new that the BK laws never caught up until the new laws took effect after Oct 14th or whatever.

I have 22k in the Roth, and I don't own a house so I get the $9,800 federal exempotion, so that's $12k left over, not including any penalties and taxes taken out due to withdrawl. I'm just on the edge here because nobody, absolutely nobody can tell me what to expect.

I've posted here and on creditboards asking if anyone has gone through a BK using federal exemptions with a Roth IRA, and nobody has. I am completely alone here and nobody can answer me.

[bkfiler]

good lord. how many days did you have to wait to have your 341 hearing?

[bkfiler]

well.. in that case then maybe you are not out of the woods. i found this but its not by an attorney:

When IRAs Meet Chapter 11 (but id imagine its the same for any BK filing)

By Roy Lewis (TMF Taxes)
August 12, 2005

If you enter bankruptcy, can creditors claim the contents of your traditional IRA? Not always, according to the Supreme Court's recent unanimous ruling on Rousey v. Jacoway. But if you assumed that the justices made IRAs untouchable to bankruptcy creditors, think again.

The court's ruling was limited in scope; it doesn't grant IRAs the same protections as retirement plans covered under ERISA, the Employee Retirement Income Security Act. Qualified plans, including normal employer pension and profit-sharing, 401(k), 403(b), 457, and SIMPLE plans, have long been granted near-absolute exemption from creditor claims in bankruptcy. But IRAs aren't covered by ERISA, which has often complicated bankruptcy proceedings.

Some states protected IRAs, but others didn't. Even the various U.S. Circuit Courts couldn't agree on IRA accounts' vulnerability in bankruptcy. While the Supreme Court decision did provide some much-needed direction, it didn't necessarily end the confusion.

To determine whether the Rouseys' IRA accounts would be protected under bankruptcy proceedings, the court employed three basic tests under the Bankruptcy Code. The IRA would be protected if:

1. The right to receive the payment came from a "stock bonus, pension, profit-sharing, annuity, or similar plan or contract."

2. The right to receive payment was "on account of illness, disability, death, age, or length of service."

3. The right to receive payment was "reasonably necessary to support" the debtor and/or his or her dependents.

The court said that IRAs "have the same primary purpose" as protected retirement accounts, "namely, to enable Americans to save for their retirement." That makes good sense, and satisfies the first of the three tests. The court also said that the right to receive payment from an IRA is derived from age -- after all, you're penalized for "early" withdrawals from a traditional IRA and required to take minimum distributions six months after your 70th birthday. So age clearly is a factor, which satisfies the second test. The third test, dealing with the "reasonably necessary" standard, was not presented before the court, but could be a big wild card. More on this later.

A simple reading of the court's decision could suggest that IRAs get absolute bankruptcy protection -- but that's not the case. For one thing, not all states use the federal bankruptcy exemptions. Some states have their own bankruptcy exemptions, which don't always compare favorably with federal statutes. In some states, you can choose between state and federal statutes, while other states permit only state rules or federal rules. Since the ruling applies only to federal statues, citizens limited to using state bankruptcy statutes are out of luck.

And let's not overlook the "reasonable support" test noted above. In the Rousey case, their IRA totaled about $55,000 and wasn't contested -- under the circumstances, it was certainly reasonable. But what about an IRA with a $1 million balance? $2 million? More?

After all, most IRAs grow from funds rolled over from an employer plan when you leave a job or retire. I have many clients with IRAs well into seven figures. Those IRAs would escape creditor claims only to the extent that the funds they contain are "reasonably necessary to support" their owners and dependents. Obviously, that's more of a judgment call than a sure thing, so don't bank on it.

Up until now, we've been discussing traditional IRAs. Do Roth IRAs also get the same protection? Probably not. In addition a few minor issues, they fail the second test above: A Roth IRA lets you withdraw contributions penalty-free at any time and demands no minimum distribution.

[bkfiler]

its not looking so good. im bummed out now

i wonder why the attorney didnt hold you over until the new laws passed. did you discuss this with them at all? would you not be qualifed to file under the new laws?

http://www.mobar.org/journal/1999/marapr/checket.htm

[bkfiler]

new law article, but maybe more ideas about how to protect it. i hope the state you live in offers protection in some fashion. how much of it were you able to claim using any wildcard exemptions you had, if any?


Supreme Court Rules IRAs Protected in Bankruptcy (sort of)

http://www.ma-estateplanning.com/article300.html

[chucko]

First of all, my first 341 was scheduled for Dec 6th and got rescheduled because my attorney couldn't make it. He didn't think I would qualify under the new laws because of my income so I filed 2 days before the deadline.

Also, I've read that Rousey case several times and it also bums me out, but it doesn't specifically make the roth IRA non-exempt. It wasn't really brought up in that case.

Here's the deal with my Roth. All the money was put in as a gift from my grandmother, not by me meaning it's not money that could have been used to pay creditors. That may or may not make a difference.

Also, the total contributions to that Roth are around $12,000. I have made $10,000 in interest which makes the total value worth $22,000. So they could take $12,000 out penalty and tax free. But the other $10,000 would have 20% capital gains tax and a 10% penalty so I'd only get $7k out of it. However, I have the $9,800 federal exemption, but how can I use that? Can I use that on the first $12,000, meaning they only take $2,200? The rest of the Roth is earnings subject to tax and penalty so according to that case they can't touch it.

See how confusing that gets? If they want $2,200 from it, they can have it, but I have no idea how they are going to handle the roth. The new laws specifically exempt the Roth IRA. Would I possibly be subject to those laws since they are technically in effect as we speak? I just hate that I have to wait possibly 60 days to find out and that the trustee never said a word in the 341 about it.

[bkfiler]

if you have wildcard exemptions then they can be used on anything you want. of course exemptions get tricky but that is what the attorney gets paid for.

if you filed under the old laws then the trustee and creditors are going to want the money if they are savy enough to see that its available. thet trustee is savvy no question.

side note: if the trustee takes anything that causes taxes then its his taxes to worry about. not yours. he pays all expenses while its in his control.

i hope you picked an attorney that will fight it out. also, i hope you picked an attorney with good relations with the trustee and judge.

[FoolAndHisMoney]

I think what bums me out is when you hire an attorney and "they don't know". I understand that the attorney fee is just a straight bankruptcy and they charge more if trouble arises, but your IRA is a lot of money to lose just because the lawyer "wasn't sure". That's why I say that people should research this like their life depends upon it and file as if you were filing pro se, but still hire an attorney anyway (if you can afford one) just to help you if there is a dispute. If I was in your situation, with everything I know today I would have waited for the new law just to get protection from losing the IRA. I'm not putting you down in saying that chuck, it's just that I think I know more then some of these lawyers just reading on this subject. Good luck and let us know how it goes.

[chucko]

My attorney did use the $9,800 against the Roth IRA, but he also put The Roth in the exempt part of one of the schedules.

What do you mean it is his taxes to worry about? Can you give me an example? I have a good lawyer, he has a good relationship with the trustee. My lawyer only deals with no asset cases, and the trustee knows this. The trustee is a very nice old guy, about 75 years old or so. My attorney is willing to fight it out also, I made sure of it, and it's no additional charge. That's what my $1000 goes toward. I just wish I had a clue what is going to happen, especially since nothing was said about it at the 341. I thought that's when they would bring things like that up.

if you have wildcard exemptions then they can be used on anything you want. of course exemptions get tricky but that is what the attorney gets paid for.

if you filed under the old laws then the trustee and creditors are going to want the money if they are savy enough to see that its available. thet trustee is savvy no question.

side note: if the trustee takes anything that causes taxes then its his taxes to worry about. not yours. he pays all expenses while its in his control.

i hope you picked an attorney that will fight it out. also, i hope you picked an attorney with good relations with the trustee and judge.

[chucko]

I think what bums me out is when you hire an attorney and "they don't know". I understand that the attorney fee is just a straight bankruptcy and they charge more if trouble arises, but your IRA is a lot of money to lose just because the lawyer "wasn't sure". That's why I say that people should research this like their life depends upon it and file as if you were filing pro se, but still hire an attorney anyway (if you can afford one) just to help you if there is a dispute. If I was in your situation, with everything I know today I would have waited for the new law just to get protection from losing the IRA. I'm not putting you down in saying that chuck, it's just that I think I know more then some of these lawyers just reading on this subject. Good luck and let us know how it goes.

You make a good point, but I was worried I would be thrown into Chap 13 with the new laws because of my income and the whole means test BS. I researched the hell out of this IRA subject, but there's really no answer because it's so new the laws haven't reflected it until after Oct. 14th. I also can't find any precedant at all. I'm filing under federal exemptions and if I didn't know better, I would think I'm the only person in the US to have a Roth IRA and go through BK.

[FoolAndHisMoney]

As long as he fights it out for you then at least you'll have a chance in keeping it.

[chucko]

As long as he fights it out for you then at least you'll have a chance in keeping it.

hey you never know, it may slip through the cracks. Plus with part of it being subject to penalty and tax, and other parts exempt via federal exemptions, I think they won't get a whole lot.