Skip to main content

In a chapter 7 can I exempt money added to an IRA account in a lump sum after age 59 1/2 but before I file for bankruptcy?

Rockville, MD |

When I file for Chapter 7 bankruptcy I will have about $5000 in cash in the bank beyond what I can exempt under my state's exemption laws. I want to try and protect this money by adding it to my IRA. I know I am allowed to add this amount to the IRA in a given year without exceeding any IRS limits. Can I put this money in my IRA before filing for bankruptcy, and thereby protect it under the rule that money in retirement accounts is exempt, even though I am over 59 1/2? I am asking because, since I'm over 59 1/2, it seems like the court might view this as "gaming the system" to avoid turning the money over to the trustee. Thanks for assistance.

Attorney Answers 6

  1. There is no hard & fast answer to this question other than to say that in light of the way you have contributed to your IRA in the past, is your doing so right now consistent with your past behavior?

    Hope this perspective helps!

  2. this is the type of question that requires a consultation with a qualified bankruptcy attorney. the best way to answer this is by looking at how you have contributed to your IRA over the last few years. under the Bankruptcy Code you have an absolutely right to protect funds have been properly contributed to your IRA and it's close to the court.

    I strongly recommend that if you are trying to file a bankruptcy case on your own you reconsider, and speak to I qualified attorney in Maryland cooking advise you as to how the trustee is likely to view this matter

  3. Please get a consutation with a local attorney, because depending on your state exemption rules and what other property you own you may be able to keep the money and not having to put it in your IRA.

    Remember that on this forum attorneys try to answer your questions with limited facts available to them. My answer should in no way be considered legal advice. No attorney client relationship has been formed by any answer give here.

  4. It seems to me that you will be best served by using a portion of those funds to hire an experienced attorney who can help you avoid the many dangers of filing without the benefit of legal counsel. The answers to your questions are very dependent upon local practices in addition to your allowed exemptions. There is no better advice than from a lawyer hired to represent your best interest.

  5. I agree with the answers of my colleagues. A good local bankruptcy attorney will be able to help you exempt the money as well as advise you whether the contribution you describe would be considered a fraudulent transfer under the laws of your area. To give you a general idea of what kind of protection there is for IRAs/pensions (assuming that the laws of your area do not make your contribution a fraudulent transfer):

    First, you need to figure out whether you are using the exemptions of your state or federal exemptions. If you are using state exemptions, check to see if there is state exemption for IRAs/pensions . Sometimes state exemptions for IRAs will have a limitation on how much can be contributed within a certain period of time before the bankruptcy (for example, under Arizona's exemption law, contributions to IRAs made within 120 days before the filing of the bankruptcy are not protected/exempt). If your state's exemption law on IRAs is similar to Arizona's, then your contribution may not be protected in the bankruptcy (depending on the day of the contribution and how close that day is to the filing date of your bankruptcy). If you are relying on the exemption laws of your state and your state's IRA exemption does not protect you, you will probably still be able to exempt the contributions/IRA under a special federal exemption for IRAs/401ks under 11 USC 522(b)(3)(C), which allows your to protect retirement funds that are exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the IRS Code of 1986 (you will have to check to make sure your IRA meets this criteria - as I understand it, most types of pensions/retirement accounts are covered). This exemption does not have a limit on how much can be contributed prior to the bankruptcy. If you are not using state exemptions and are using the federal exemptions under 11 USC 522(d), then there is protection for IRAs under 11 USC 522(d)(12), with no limitation on how much can be contributed prior to the bankruptcy (to qualify, retirement funds must be exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the IRS Code of 1986). There are a lot of moving parts to this complex issue. I would urge you to consult with a bankruptcy attorney in your area to help you determine how to exempt the property so that you do not risk losing it and explain to you whether the laws of your area would make this contribution fraudulent. While a decent bankruptcy attorney will probably cost up to $2,000.00 (and probably much less), this amount is nowhere near as high as losing the entire $5,000.00 in your bankruptcy (which is what could happen if you do not get the legal help you need).

    Please note that the information provided is for informational purposes only and does not constitute, and should not be considered legal advice. Transmission of the information contained here and receipt by the reader is not intended to create and should not be construed as creating an attorney-client relationship. The bankruptcy law services described herein are with respect to bankruptcy relief under the Bankruptcy Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

  6. My colleagues are right. You should talk this over at a free consultation with an experienced Maryland bankruptcy attorney. You'll need his or her help in dealing with the trustee.

    This is not legal advice and should not be relied upon as legal advice. Discepolo LLP is a Maryland law firm with offices in Baltimore, Towson, Columbia and Calverton. Call us at (410) 296-0780 to arrange for a free consultation.

Bankruptcy and debt topics

Top tips from attorneys

What others are asking

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics