Chief U.S. Bankruptcy Judge Jeffrey Bohm in Houston, Texas rule on January 30, 2015 that money taken from a Texas-exempt I.R.A. during a bankruptcy loses it exempt status, and can be seized by a bankruptcy trustee to pay creditors, if the I.R.A. money is not rolled over within 60 days as provided by Texas law. In re Hawk, Case No. 13-37713, Bankr. SD Tex. 2015.

The debtors filed a chapter 7 bankruptcy, and claimed their $165,000 IRA account as exempt under Texas Property Code section 42.0021. The trustee allowed the exemptions, and filed a no asset report. The deadline for objecting to exemptions passed. A creditor objected to discharge, so the case was not closed right away, as most no-asset chapter 7's are.

The debtors then cashed in their IRA and began to spend it, instead of doing a "roll over." The objecting creditor took their deposition and learned about the IRA being cashed in, and told the trustee. The trustee then filed an expedited motion for turnover. The court's ruling is that the decision in Viegelahn vs Frost (In re Frost), 744 F.3d 384 (5th Cir. 2014) should be extended to Texas Property Code section 42.0021.

Texas Property Code section 42.0021 says that IRA's are exempt, but not if they are distributed and not rolled over within 60 days. At the end of the opinion, Judge Bohm noted that the Frost case should be a "huge wake up call" for the debtors' bar.

Judge Bohm also said that counsel for debtors should carefully counsel their clients about preserving their exemptions, and that debtors should refrain from selling exempt assets until their case is closed, or if they sell during the case, abide by state exemption provisions to reinvest the proceeds so that the asset remains exempt.

Do you think Judge Bohm ruled correctly? Should an IRA be safe from creditors and the bankruptcy trustee, provided it was exempt when the bankruptcy was filed? Or should people lose their I.R.A. if they take it out during a bankruptcy and don't roll it over?

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Great informative article. Chapter 13 Lawyers
by Julia watson March 9, 2015 at 04:52 AM
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