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Is IRA an exempt asset in Georgia?

By Jonathan on March 9, 2006

Hi Jonathan, Many thanks for your good website!

I’m not in any immediate danger of bankruptcy (credit score 770), but if I get downsized and can’t get another job, which is somewhat probable, then I may need to consider Chapter 7. My main concern is that my wife has a 401K (she is now retired) and we’d like to move it to an IRA. It’s all we have and it’s worth about $100,000. We have no equity in our house or anything else other than her small retirement income ($2,400 a month). We can have much better investment options in the IRA than the 401K and would like to transfer the funds but I’m worried that the courts, especially in GA, would not respect the IRA whereas they would respect the 401K (Delta Air Lines was her employer). I did a Google search and just can’t find a definite answer. It seems that in Georgia, the trustee can go after an IRA if the person funded it themselves, but if the IRA were funded from a 401K that was ERISA, then the IRA would be protected as well. Does this make sense to you? Would you please be so kind as to clarify and perhaps post this on your blog? Many thanks for your kind consideration and assistance. Best wishes to you and your practice.

–Richard

Richard – thanks for your question. The case in the Northern District of Georgia that most closely mirrors your facts is the Hipple case in which Judge Cotton found that a SEP/IRA with an “anti-alientation” clause was excluded from the debtor’s estate pursuant to Section 541(c)(2) of the Bankruptcy Code and was therefore an exempt asset pursuant to Georgia Code Section 44-13-100. Since Hipple was issued, I have regularly used it to declare undistributed funds in an IRA as exempt. Also note that the Georgia exemption statute specifically declares as exempt “an individual retirement account within the meaning of Title 26 U.S.C. Section 408.”

I would point out, however, that the 2005 revision to the Bankruptcy Code did not change Bankruptcy Code Section 541(c)(2), but it did substantially change Section 541(b). Section 541(b) identifies property that is not included in property of the estate (and therefore exempt). I see nothing in the new Section 541(b) that overrules Hipple, but it is also too early (as I write this in March, 2006) to know if any trustee or creditor will try an end run around Hipple.

So, the bottom line in my view is that right now I am still declaring IRAs, including rollover IRAs as exempt pursuant to Hipple and O.C.G.A. Section 44-13-100. Should I have a case in front of me like yours involving someone’s life savings, I would most likely want to research the issue to be able to offer a more definite opinion.

Check your “ChexSystems” report

By Jonathan on February 18, 2006

I recently saw a post on Jay Fleishman’s New York Bankruptcy and Consumer Law Blog where he made a very good point – that is if you are having trouble opening a checking or savings account, you should investigate to see whether Chex Systems has negative information in your file. ChexSystems is subject to the Fair Credit Reporting Act and derogatory and inaccurate info can be challenged. Banks use ChexSystems to see if you have bounced any checks – if so, your application for a new bank account can be denied.

Here is the link to getting a ChexSystems report. If you get your report and it contains accurate but damaging information, you may want to contact the bank involved and settle up your dispute. If there is negative but inaccurate info in your file, you should dispute the negative entry just like you would a derogatory entry in a credit report.

Credit counseling rules can be harsh

By Jonathan on January 12, 2006

Last week, I was in one of the bankruptcy courts in the northern district of Georgia waiting for my case to be called. One of the cases that was heard before mine caught my attention as it demonstrates the harsh new reality of proceeding in bankruptcy under the 2005 bankruptcy reform laws.

The matter before the judge was a hearing in the case of a man who had filed a Chapter 13 case without first getting his credit counseling certificate. As you may know, the new law requires that any bankruptcy filer must obtain a credit counseling certificate from an approved provider within 180 days of filing or within 5 days after filing. If no certificate is submitted, the court will hold a hearing to determine if the debtor has good cause for not attending pre-filing credit counseling.

The case I am writing about involved what appeared to be an elderly man who had filed a “pro se” (without a lawyer) Chapter 13 case to stop a foreclosure. The debtor was not able to be in court because he was too ill to attend. The debtor appeared by telephone – the courtroom deputy set up a speakerphone in the courtroom and all of us there could hear the proceedings. [Read more…] about Credit counseling rules can be harsh

New Bankruptcy Law

By Jonathan on December 12, 2005

Well, October 17 has come and gone and I have now filed four (4) cases under the new law. Business has been extremely slow – I suspect that everyone who had been considering filing did file prior to October 17. My new cases have mainly been homeowners who want to file Chapter 13 to stop foreclosures.

My observations so far:

client interviews now take two to three hours, as opposed to 60 to 90 minutes before. There is a lot more paper we have to see and, frankly, the client’s options are limited.
clients have been less than enthusiastic about the pre-filing credit counseling. The ones who have taken the counseling generally like it, but clients facing emergencies have been less than cooperative.
from my end, the requirement that we gather information is a good thing. I am finding all kinds of judgments and lawsuits that my clients did not know about and never would have known but for my investigation.
this new bankruptcy law is not going to change human nature – people who are financially strapped are going to continue to be desperate and disorganized.
the new Chapter 13 plan in the Northern District of Georgia is a major pain. When the numbers pick up again, I will be very selective and I am afraid that debtors with challenging cases will have a hard time finding experienced lawyers.

Credit Card Minimums Rising – a Taste of Things to Come?

By Jonathan on September 15, 2005

According to a news report from Bankrate.com, MBNA, Citibank and Bank of America have announced that they are increasing minimum monthly payments on credit card balances from 2% to 4%.

Clearly the credit card companies understand that the forthcoming change to the nation’s bankruptcy laws will leave more and more people unable to turn to bankruptcy as a way out of crippling unsecured debt. With bankruptcy soon to be unavailable to many middle class wage earners, there is no reason for credit card lenders to worry that raising the minimums.

What other surprises can we expect from banks and lending institutions?

New law – should you file before October 17?

By Jonathan on September 2, 2005

October 17, 2005 is the day the new bankruptcy law takes effect. Over the past few months, ever since this date has been announced, my office has been receiving an ever-increasing flow of new client questionnaires from potential clients. Most everyone assumes that they should file prior to the effective date of the new law. Is this correct thinking?

For the most part, it probably is. After thorough reviewing the new law in preparation for a seminar I am teaching at the end of September, I have the following observations about the new bankruptcy law:

1. the “means test” is very restrictive. If your household income exceeds the average household income for your State (i.e. Georgia), the Bankruptcy Court will presume “abuse” and require you to file a Chapter 13 repayment plan. There are some “special circumstances” exceptions but don’t count on those.

Currently, the Courts ask whether your case has been filed in “good faith.” I predict about 30% to 40% of people who can file a Ch. 7 today will not be able to file after October 17.

2. the tone of the new law reflects an attitude that debtors filing bankruptcy are abusing the system. It also reflects an attitude that debtor’s lawyers are contributing to that abuse.

3. the new law is designed to make filing bankruptcy more intrusive and painful. For example, post-October 17 filers will have to enroll (at your expense) credit counseling and budget counseling courses. Bankruptcy petitions will have to include extensive supplementary documentation such as tax returns and proof of income.

4. the new law appears to have been written without much input from bankruptcy lawyers or bankruptcy judges. There are numerous omissions and unknowns. For example, the means test applies if your income exceeds “the median income” for a like sized family in your State. However, the law does not tell us where to find the necessary statistics. The census bureau statistics describe median income for a family of four, but what if your family is smaller or larger. The census bureau also differentiates between income in rural areas and city areas, although the new bankruptcy law does not make such a differentiation.

My sense is that the bankruptcy judges in our district will help us understand how this new law will be applied. But it may take 6 months to a year before we really know. In the meantime, do you want to be a test case for some provision of the new law?