Bankruptcy Protection
Married taxpayers (retired; age > 60) filed for Chapter 13 bankruptcy a couple of years ago- they make monthly payments to a bankruptcy trustee with payments due to last an estimated 3 more years
One spouse current receives a month pension. Her former employer has now offered her a lump-sum payout which can be rolled to an IRA.
How would bankruptcy impact the lump sum/IRA rollover decision?
I think due to Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA) legislation the assets (now in an IRA) would remain protected as IRA asset remain protected although creditor protection is dependent upon state law
On a separate note can anyone recommend a tool or calculator that helps to compare a pension payment versus lump sum payout?
Thank you
Permalink Submitted by Alan - IRA critic on Mon, 2015-07-27 20:34
This is extremely state specific, and most states have opted out of all or part of BAPCA. If a given state did not protect IRAs and observed all of BAPCA, a rollover IRA would be protected without a dollar limit. That said, a rollover done during a bankruptcy could be considered a disallowed conveyance not eligible for protection in the rollover IRA because it should not have been rolled into a protected account after the filing.