In re Stokesberry, Bankr. Ct., SD Texas 2013; If you cash out a retirement plan and have it in your bank account when you file bankruptcy, the proceeds are no longer exempt

In the case of In re Stokesberry, Case No. 13-31714, U.S. Bankruptcy Judge David Jones of Houston ruled that 401(k) proceeds that were in a bank account on the filing date of the Debtors' chapter 7 case, were not exempt. However, Social Security benefits that were also deposited, were exempt, since the proceeds of Social Security benefits are exempt even after deposit, according to federal law.

So the Court performed "tracing" to determine how much of the funds in the account were non-exempt, and had to be turned over to the trustee. Using the "lowest intermediate balance test" tracing method, the Court determined that $4289.76 of the funds were non-exempt, and had to be turned over to the trustee. The Court determined that $6599.55 was exempt, and could be kept by the debtors.