Expert: Mark J. Markus- California Bankruptcy Attorney - 9/29/2008

Question
Hi,

We are filing chapter 7 bankruptcy in California.  Can you confirm if money in an IRA is protected?  Basically, I will be receiving approximately $95K as an inheritance.  About half is pending the sale of a home.  The other half has been put into IRAs.  Will the portion from the sale of the home be protected as long as it is placed into an IRA?  If we decide to take out all or part of the total inheritance and use as a down payment for a home, can we do that before, during or after filing chapter 7?  We were told that any monies for retirement or being put into a home are safe.

Answer
Well, you're adding some very complicated nuances to your question, but basically the funds in the IRA are safe (assuming you are allowed to put that much into an IRA at one time per the Internal Revenue Code).   After filing chapter 7 (once the case is over) you can do whatever you want.  Prior to, if you use the funds for a downpayment on a home, then it depends on the equity in the home and the value of all your other assets as to whether the amount will be protected by your homestead exemption (as well as which state's exemption laws apply in your case, which is a more complicated analysis).  During the chapter 7 case you can't do anything without approval of the Trustee in your case.