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TJ, Esq.
TJ, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 12207
Experience:  JD, MBA
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You answered a question on Jan 23. I just follow up with with

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You answered a question on Jan 23. I just follow up with with another question.
I am suing the defendant for breaching business contract and fraud. If I prevail in court and get a judgement to seize his properties, according to my understnading, I can go after the real-estate and businesss the defendant owns.
What about defendant's IRA account or other retirement type of account. For example, if the defendant intentionally hide his assets after the lawsuit was filed, he may only left with his retirement asset because he has to pay high tax if the does a lump sum withdraw. Can one file for bankruptcy while having quite some asset in IRA or other retirement? I know his social security is fully protected by law. But I am not sure how the retirement asset are protected.
Hello and thank you for allowing me the opportunity to assist you.

ERISA accounts are generally exempted in their entirety. The IRA is exempt up to a certain point. There is no specific amount. Instead, the law allows the debtor to exempt the amount necessary to provide for support in retirement. The botXXXXX XXXXXne is that a judge determines what that amount is on a case by case basis.

However, if the debtor files for bankruptcy, then like an ERISA account, the entire IRA can be exempted per the Bankruptcy Code regardless of how much is in it. Unfortunately, this would likely mean that if you stood a reasonable chance at getting at the IRA, then the debtor would likely file for bankruptcy.

I am truly sorry to give you this bad news, but please understand that it would be unfair to you (and unprofessional of me) to provide you with anything less than an honest response. However, if your concerns were not satisfactorily addressed, then please let me know, and I will be happy to clarify my answer. Please remember to rate me based upon whether I answered your question, and not upon whether the answer was good news or bad news. Your positive feedback is greatly appreciated.

Thank you and good luck!
Customer: replied 4 years ago.


Thanks. What ERISA means here. I guess it includes the whole life insurance(with investment), and annuity etc.

 

I am assuming how this defendant act as follows. Could you help me understand how he is able to file for bankruptcy or hide his asset and protect his IRA or other retirement assets?

 

I assume that besides his IRA and other retirement asset, he started with net assets of 2 millions. This includes his business assets, real-estate, bank saving etc. After the lawsuit was filed, he started to transfer his non-retirement asset away, or sold those assets to liquidate or did re-refinancing (on real-estate) to take money out of real-estate. After the judgement arrived, he then files for bankruptcy.

Here I am not sure if he meets the criteria to file bankruptcy. His behavior shows his intentional fraud and intentionally tranferred his asset to avoid judgement. I heard if he did that, he violated the law of avoiding judgement transfer. If bankruptcy can protect him regardless, it does not matter how many judgements (i.e the judgement of loss initial lawsuit and judgement of transferring away asset after the initial lawsuit started) he will be facing.

 

Generally speaking, if a person committed financial fraud or scam, it seems his retirement fund can be protected even if he goes to jail. For example, Madoff can keep his retirement assets even if he committed scam and fraud and in jail. Is that understaning correct?

Hi again.

Q: What ERISA means here. I guess it includes the whole life insurance(with investment), and annuity etc.

 

I am assuming how this defendant act as follows. Could you help me understand how he is able to file for bankruptcy or hide his asset and protect his IRA or other retirement assets?

A: The answer is in Section 522(b)(3)(c) of the Bankruptcy Code, which exempts "retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986"

 

So basically, if the annuity or IRA is covered under those sections of the Internal Revenue Code, then it is exempt per the Bankruptcy Code that I cited, and, unfortunately, he can keep it after filing for bankruptcy. You can review the Internal Revenue Code here: CLICK HERE.

 

Q: After the lawsuit was filed, he started to transfer his non-retirement asset away, or sold those assets to liquidate or did re-refinancing (on real-estate) to take money out of real-estate. After the judgement arrived, he then files for bankruptcy.

A: That is considered a fraudulent transfer. First and foremost, you can take action and ask the judge to reverse the transfers. Even if you do nothing, however, the bankruptcy trustee would never let him get away with it. The bankruptcy trustee will reverse the transfer himself once the bankruptcy is filed, so long as the transfer occurred within 2 years of when the bankruptcy is filed. If actual fraud is proved, then the bankruptcy trustee can go after the assets even if more than 2 years have passed. And there's no doubt that the bankruptcy trustee would do it because they are paid a percentage of the assets that they recover for the bankruptcy estate (i.e., for creditors).

 

Q: Generally speaking, if a person committed financial fraud or scam, it seems his retirement fund can be protected even if he goes to jail. For example, Madoff can keep his retirement assets even if he committed scam and fraud and in jail. Is that understaning correct?

A: It depends. If the retirement account was funded with money obtained by fraudulent means, then it can be attacked. But if the retirement account was funded legitimately, then it is likely safe.

Customer: replied 4 years ago.

Thank. That answered my questions. Just one more thing. I heard if he re-financed his real-estate after he knows the lawsuit, the mortgage holder will have the priority to seize the real-estate even if the defendant's re-financing action is a kind of fraudulent transfer ( I think that is for the purpose of avoiding judgement). But there is no way to prevend this from happening before the judgement and the plaintiff has no way to recover damage caused by this action(?).

Hi again.

When you talk about refinancing, I am assuming you're referring to a situation in which the defendant in the lawsuit refinances to get at equity in the property. In that scenario, the refinancing would not be a fraudulent transfer because the mortgage lender is giving the defendant money in exchange for the bigger lien. In other words, the defendant is not transferring his assets ... rather, he is just converting his assets from one form to another (i.e., from real estate to cash). What he does with the cash could be considered fraudulent, of course.

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