Courts reveal that an IRA transfer into your checking account is still doable even after you have filed for bankruptcy. In this article from Forbes, they discuss how you can use your Roth IRA savings to stay afloat even after filing for Chapter 7 bankruptcy. You don’t need to worry so much if you fall on hard times, because your IRA savings can pick you right back up.
IRA Transfer Pushes Through Despite Bankruptcy
In this case, the debtors filed for Chapter 7 bankruptcy; a few hours later, the debtors withdrew funds from Roth IRAs and transferred the money into their checking account. The next day, they used those funds as a down payment on a house and the balance for living expenses.
The debtors in this article claimed their entire IRA savings as exempt, despite the assets already being liquidated. The trustees argued that because the IRA is state property, the debtors should not have the right to transfer the funds. The debtors argued that the IRA transfer was harmless to the estate. The trustees refuted this by saying that the transfer of IRA funds made the exemption unjust. They also argued that since the debtors transferred the property, nothing could be returned to them as exempt. In the end, the court sided with debtors. The court said, “[i]t is undisputed that the transfer would have been entirely appropriate if the objection period had lapsed.”
How Can Knowing an IRA Transfer is Possible After Bankruptcy Help You?
Simply put, it provides those who don’t earn as much a safety net for when times are tough. Chapter 7 bankruptcies can’t be filed by the very wealthy, and transferring and using your IRA funds can most certainly help you come back from bankruptcy. You can use your transferred IRA funds to pay what you owe, and then put the rest of the money into another retirement plan.
Stay Smart About IRA Transfers and Bankruptcies!
Fifth Circuit Examines Intersection Of IRA Withdrawals And Bankruptcy Exemptions https://t.co/dGWLx3pSHA
— David Galler (@Daveglaw) September 22, 2017
IRAs have a lot of advantages. However, it doesn’t grant you a free pass whenever things go financially south. Courts could decide to side with the trustees and not the debtors. There are still risks involved. Since IRAs grant many perks such as deductible taxes, some may use this as a starting point into fraudulent schemes. Even if you have good intentions, a misstep may end with courts not siding with you. It is still best to seek out advice from a professional about bankruptcies and IRA transfers.
Mike Norris created this video to help educate people about Chapter 7 bankruptcy. He believes in helping the little guy and that knowledge is power. Being equipped with the know-how on what to do can save you a lot of time and money:
What has been your experience with your IRA? Has it helped you out when you were in a financial twist? Tell us more in the comments section below!