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Can I fund a Roth IRA before filing chapter 7?

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    Can I fund a Roth IRA before filing chapter 7?

    Need some advice. I recently sold my car that I own outright. It had tons of equity. My question is, my state allows 3K on vehicle exemption, and I can apply the additional wildcard exemption to it which mounts to about $4500.00
    I will pay 3k-4k for an older used vehicle. My problem is that I have about $11k left over after I pay legal fees, some debts, and catch up on utilites.
    How can I protect this $11 k cash? Can I use part of it to fund a roth Ira and use the rest to pay my real estate taxes for the current year?
    I can also use some of the money to buy 6months auto insurance, and pay personal property taxes for the year also. Is this a wise move?
    I don't want to raise any flags with the trustee. Any advice???

    #2
    Where are you located? That will make a big difference since you could have access to Federal exemptions, which the wildcard is pretty generous (unless you have alot of home equity). Don't pay anybody without the advice of an attorney (outside of "regular" living expenses - gas, groceries, etc) or you could create a preferential transfer. Also, do not repay any friend or family members or they will likely have to simply turn it back over to the Trustee.
    I am not a lawyer - I just play one on TV. It is always in your best interest to seek legal advice from a competent attorney licensed in your state. Any information I post here should not be construed as legal advice.

    Comment


      #3
      I'm located in missouri. not sure if there are any federal exemptions here.
      I want to fund my roth ira before filing but not sure if this will raise flags with the bk trustee. Out of the 11k cash, I can put 5k into roth and used the rest to pay real estate taxes and pptaxes for the current year. Is this a wise move?

      Comment


        #4
        I "believe" (you will have to double check), that Missouri does not exempt contributions made in the 3 years prior to filing? Even if they did, most states allow "regular" contributions to an IRA that already has existed for awhile, but anything unusual or the opening of a new IRA within 12 months proceeding the filing is not exempt. I simply don't think that would work.

        I thought that Missouri only had a vehicle exemption of $1,000? Guess not . . .
        I am not a lawyer - I just play one on TV. It is always in your best interest to seek legal advice from a competent attorney licensed in your state. Any information I post here should not be construed as legal advice.

        Comment


          #5
          My Roth Ira has been opened in the last five years. It's not like I'm gonna go open up a new IRA and stick the cash in there. I just want to know if i can contribute to the allready existing ira that I have before I file. Do you still think this will be a problem with the trustee?

          Comment


            #6
            Here are the Mo. exemptions.
            http://www.thebankruptcysite.org/exe.../missouri.html

            Comment


              #7
              Keepmine,
              thank you so much for that info. My attorney did advised me to sell my paid off car outright and take the exempt vehicle amount and put it down on a much newer vehicle. Then reaffirm the vehicle loan when I file chapter 7. I will owe more on the vehicle that what its worth when I drive it off the lot. That away, I can keep my car, which I still very much need.
              I just don't know if I want to take out a new car loan and have a high car payment added to my allready tight budget. I want to get out of debt not incur more debt. I guess the non exempt cash that is left over after I pay legal fees,
              get caught up on utility bills, pay my auto insurance, what's left over then the trustee will take right? My other option is to not file bankruptcy and use the cash to buy a cheaper vehicle with no pymts and try the debt settlement option. Don't know yet what I'm gonna do. Really confused right now. I know I want to keep my hands clean and legal. I've never file bk before and the whole process scares me. Never thought I be in this situation. I just know that I need a fresh start.

              Comment


                #8
                Why not just take your time and spend it down.
                Get any dental work you and your family have put off taken care of. Get everyone to the eye doctor.
                Any home repairs or new appliances that are needed this would be an acceptable use of funds.

                Comment


                  #9
                  You mean if I need a new refrigerator, I can go buy one and not get in trouble?
                  The new frig would cost about $1600. would that raise any flags? I also need to buy new tires for my husbands vehicle, about $800.00. Would that be acceptable? That would leave me with $8600. That's after I pay the sales tax and tags on my new vehicle. How about some cosmetic surgery? Does that count? (wishful thinking). What if I took the remaining cash that's left over from the sale of my vehicle and divide it equally among all the creditors that I owe?
                  Would it still be considered preferential? Then when I do file chapter 7, there is no cash left to be accounted for, then the trustee wouldn't object.
                  My attorney charges me $250.00 per hour just to ask him these kind of questions. Thats just for seeking his advice. That's not counting what I have to pay him just to file! After two phone calls with him, I realized that he was racking up my legal bill. Guess thats why I'm on this forum. I have appreciated all the feedback on here. Great forum.

                  Comment


                    #10
                    Buying things that are reasonably necessary are not going to cause any problems.
                    I'd have any sort of surgery or medical care you've been putting off taken care of.
                    Don't pay any creditors. If any money isn't exempt-let the trustee take care of it.

                    Again, you seem to be in some rush to file. Slow down and take your time.
                    If you can hold out for 4 or 5 months I guarantee you can spend it down.
                    You asked about real estate taxes-if they're due in a few months pay them on the due date.

                    Comment


                      #11
                      Originally posted by starr4law View Post
                      Where are you located? That will make a big difference since you could have access to Federal exemptions, which the wildcard is pretty generous (unless you have alot of home equity). Don't pay anybody without the advice of an attorney (outside of "regular" living expenses - gas, groceries, etc) or you could create a preferential transfer. Also, do not repay any friend or family members or they will likely have to simply turn it back over to the Trustee.
                      Does anyone know what the Federal exemptions, cash wildcard is for Michigan. I looked and could not find it anywhere.

                      My concern is, at the end of any given month I have $1770 in my checking and by the 3rd of the next month (this is the date mortgage is due) the cash is gone as I have just paid that months mortgage. Will I have to exclude that amount in a chapter 7?
                      Chapter 7 filed 11/4/10 ---- 341 Meeting 12/1/10 ---- Discharge 1/31/2011.

                      Comment


                        #12
                        Michigan exemptions: http://www.legalconsumer.com/bankrup...lName=Michigan

                        Also, look up posts by BKDefender and, naturally, ask your attorney about the 401k strategy.
                        Last edited by StartingOver08; 07-11-2010, 03:38 PM.
                        Filed CH 7 9/30/2008
                        Discharged Jan 5, 2009! Closed Jan 18, 2009

                        I am not an attorney. None of my advice is legal advice in any way..

                        Comment


                          #13
                          I put $5k in an Ira, paid $4k in federal estimated tax, paid 6k in property taxes, all about 4 weeks before filling. My attorney said that possibly the trustee could take a negative view of this when looked at from the big picture but as long as you disclose what you do the worst that can happen is that the trustee wants the money back. The trustee did not say a thing. As long as it's a valid expense and within reason, consider it and if you do it make sure you disclose it.

                          Comment


                            #14
                            Simple solutions, 2 options that I can think of:

                            1. On the 30th (or whatever date the funds are placed in your account) pay your mortgage by online bill pay from your bank account. If I schedule in advance to pay a bill on xx/yy date, the funds are removed from my bank account that same day. If I go online to my bank account today and set up a payment, the soonest it can make that payment is tomorrow. Plan ahead...

                            2. Don't file between the 30th (or whatever date the funds are placed in your account) and the 3rd of the month.

                            Originally posted by Fallonedward View Post
                            Does anyone know what the Federal exemptions, cash wildcard is for Michigan. I looked and could not find it anywhere.

                            My concern is, at the end of any given month I have $1770 in my checking and by the 3rd of the next month (this is the date mortgage is due) the cash is gone as I have just paid that months mortgage. Will I have to exclude that amount in a chapter 7?
                            Get mortgage modified: DONE! 7 months of back interest payments amortized, payment reduced over $200/mo
                            (In the 'planning' stage, to file ch. 13 if/when we have to.)

                            Comment


                              #15
                              I had the same question regarding the Roth IRA. I plan to file in Jan or Feb 2011 using the federal exemptions. I know that contributions made to a Roth IRA are exempt (US Bankruptcy code section 522(d)(10)(E). What I don't know is if the trustee will take exception to any contributions made close to the filing deadline.

                              Like you, I have some cash that I want to keep and utilize to provide a cushion for me post-bankruptcy. I like the idea of putting this money into a Roth IRA because they are exempted and should I need the money, my contributions can be withdrawn without any taxes or penalties. Any earnings on the Roth account can be taxed pr penalized for early withdrawal, but contributions are not taxed because you're contributing after tax dollars.

                              Regarding expenses in general, my atty advised that I can spend money on anything that I would have ordinarily spent money on if bk was not in the picture. If your fridge breaks, buy a new one. If your car cost more to repair than it's worth, buy another one. I plan to spend on whatever I need to. But I will think through my purchases so that I can sufficiently support/explain my spending if/when the time comes.

                              Comment

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