I.R.A. distribution during a bankruptcy can be seized if not rolled over within 60 days.

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Feb 02, 2015

Chief U.S. Bankruptcy Judge Jeffrey Bohm in Houston, Texas rule on January 30, 2015 that money taken from an 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. 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.

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