Bankruptcy Planning/Exempting Assets

[Gregeney]

What is the name of your state? Kentucky

A person is in need of a bankruptcy. They come into an inheritance just prior to filing a Ch7. The amount of the inheritance is not sufficient to offset the need for bankruptcy but it is a cash asset beyond what can be normally exempted using all wildcards.

Would there be any problem if that cash was used to establish an IRA or another exempt retirement account?

Debtor is approx. 50 years of age and the amount that can't be exempted is approx. $40,000.

 

[tranquility]

Isn't that always the question? Whether changing non-exempt assets to exempt is good bankruptcy planning versus what is a scheme to "hinder, delay or defraud creditors". You need to look at your local judges' decisions. I suspect this would be the latter, but I don't ever read the cases so have no idea.

However, even if you could, you will be limited by the tax laws on contributions limitations.

 

[bigun]

http://www.kyeb.uscourts.gov/opin/leeopin/snyder.html

See if this case is still controlling. The debtor just flatout admited that upon advice of counsel he converted nonexmpt assets to exempt assets prior to filing for the purpose of proecting them.
Also, look at various annuity products that may be exempt.