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In Texas, in a Chapter 7 Bankruptcy proceeding, what kind of documentation does the trustee ask the debtor for, regarding IRA exempted assets? For instance, an IRA annuity. Will they require a yearly statement from the insurance company showing that it is an IRA, and that's it, or what? I had my IRA with a securities house, invested in mutual funds. I had many medical bills due to a long and costly fight with cancer. In October of 2008, I closed the account and asked for the proceeds in check form. In about 70 days, I decided on the new company to place the funds in. The bank made it an IRA, while noticing that I had gone over the rollover requirement of 60 days. I did a direct transfer to an IRA annuity in March, 2009, to make more interest, and pay myself commission, because I needed it to live on. I am still without a job, (no income),and have spoken to several attorneys. Some say not to file, since the trustee could find out that it was non-exempt for 10 days, thus it would be a seizable asset. Others say that because it's so small now, (went from 47,000 to about 32,000), that trustee will not dig any deeper. I want to file, so I can restart my credit clock. Cancer, divorce, and joblessness have completely depleted me, and I owe about 90,000. I stopped paying creditors in Nov. Most accounts have been purchased by creditors. What is your opinion? I know there are no guarantees, I just wonder what chance I have to keep my IRA.
It's up to the IRS to determine whether or not the rollover qualifies as a lump-sum distribution subject to penalties -- not the bankruptcy trustee. Even if the trustee were to ask the bankruptcy court to decide, it would be outside the court's jurisdiction, because the IRS has discretion to waive the rollover deadline. So, unless the IRS determines tht the rollover was a withdrawal and denies you the deadline, then the trustee can't seize the account assets.
The question is whether or not the IRS decides to allow the 10 extra days or not. And, you won't know that unless you're audited, which usually takes about 13 months after you file your tax return.
You'll have to assess the risk and then decide what to do. If you're filing Ch. 7, you'll be discharged long before the IRS decides what to do. But, the trustee could conceivably ask that the case remain open until that issue is resolved, in which case, your account will be determined by whether or not the IRS ultimately allows the rollover. For info on obtaining a rollover exension, see Pub. 590, page 23.
Hope this helps.
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Experience: Attorney and Real Estate Broker -- Retired (mostly)
Thank you. You have actually been more detailed and knowledgeable than the numerous attorneys I have met with! After I requested help from you (in the middle of the night), I researched the Texas code, and found this information to correspond with what you just wrote me.
In addition, my IRA is in an annuity, and annuities that are purchased in Texas are exempted very broadly under Article 21.22 of the Texas Insurance Code.
I still need you to address the part of my question re: what documentation I must provide. Will it be verbal while I am at the creditor meeting for 5-10 minutes? One attorney said that the trustees would be more interested in spending time persuing bigger IRA's and that chances are that the trustee will pass it over for bigger amounts of money, since they get paid a percentage of whatever they recover. What has been your experience re: this situation?
You won't be required to bring any docs to the creditor's meeting, however you are required to provide any creditor who requests it with your most recent tax return. If your tax return shows a rollover for last year, and you treat it as timely on the return, then that's all the trustee and any creditor will know, unless he/she asks specific questions about the rollover, which I would think about as likely as being hit by a meteor during a snowstorm in Hawaii.
By the time that the IRS gets around to auditing your return, if it does audit you, your bankruptcy will be discharged and closed, so the trustee won't know that you were audited (I'm assuming that you have a "no asset" bankruptcy, because all of your assets are exempt, and so there is nothing for the trustee to adminstrate/sell).
That said, there's always the chance that a meteor will hit Hawaii during a snowstorm, so I can't promise you a perfect outcome. But, based on your description of your circumstances, I don't know how the trustee would ever know about the extra 10 days of the rollover -- unless he/she asks at the 341 meeting -- and the trustee would have to ask you specifically how many days passed between the withdrawal and the rollver. That's not real likely, because the trustee knows that the typical debtor, won't know the answer to the question.
And, if you don't remember, then your answer would be, "I don't know."
Thank you so much. You have provided me with the details that I needed. I am going to get this behind me, and make a new start. Goodbye, and God bless you!
I hope things work out for you. Good luck!