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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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A person has a deferred indexed annuity with a cash value of

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A person has a deferred indexed annuity with a cash value of about 80,000 and a surrender value of 65,000. She is facing bankruptcy and has no other substantial assets. Please suggest her options in order to preserve this asset. Her husband died and she will have a dire need for income.

cfortunato :

Hi - my name is XXXXX XXXXX I am a Bankruptcy and Consumer Protection attorney here to assist you.

cfortunato :

Is this annuity an IRA, or a similar account?

Customer:

I believe that it is not an IRA.

cfortunato :

If the account is IRS-tax deferred, it should have an IRS designation, such as 401K or 408, etc.

cfortunato :

Do you know which IRS designation the account has? (Depending on the designation, the person may be able to keep the account if she files a Bankruptcy.)

Customer:

It is a non qualified annuity.

Customer:

It is not funding a qualified retirement plan such as an IRA.

Customer:

Are we finished?

cfortunato and 2 other Bankruptcy Law Specialists are ready to help you
Thank you for your response.
When you said the annuity was a "deferred indexed annuity", didn't you mean the annuity was tax-deferred?
Customer: replied 3 years ago.


I think that all annuities that have not been annuitized are growing on a tax deferred basis. When the annuitant accesses the cash value as a withdrawal, the income is subject to tax. In this case, the annuity is not an IRA, etc. It is a non qualified annuity and my question is how will the value be treated as a result of a bankruptcy?

Thank you again for your response.

Given the information you provided, this annuity would not be exempt (protected from the Bankruptcy court).
Basically, the only way to protect a non-exempt asset is to convert that asset to an exempt asset (such as the purchase of a homestead) before filing a Bankruptcy.