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Protecting Client Assets through Chapter 7

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Mar 2, 2011 12:21 am

Sorry for the post count of 1, I cannot for the life of me recall what I previously put down for my email address or my username.  Anyway, I have a prospect that is going to declare bankruptcy as soon as we can figure out what we can do to protect what little they have left of their assets.  They sold a house and have around $50-60K of the proceeds left.  After speaking with their attorney I have determined it is safe to put $24K into Roth IRAs, but unfortunately that leaves around half of their assets still liable to creditors.  The prospect is in CA.  Wife has PERS and contributes to a 457. Husband is in construction (read: unemployed).  AGI is well below threshold.  Any ideas for the other $25-35K?

Mar 2, 2011 1:52 am

Check your state laws, but an annuity may be the key.

Mar 2, 2011 3:38 am

State doesnt matter as bankruptcy is federal event. Anything put into an annuity or IRA within 1 year, and especially within last 3 months will be considered fraudulent transfer. The trustee will then ask for the assets, costing your clients the money + IRA/Annuity Penalties that may apply. The bankruptcy trustee is paid off of finding assets, so he/she will look for any type of money transfers. Send them to a bankruptcy attorney and be sure not to advise them on something that could come back on you.

Mar 2, 2011 4:20 am

I thought the same thing so I spoke with their bk attorney (or assistant, not sure).  I specifically asked her about any IRAs opened within the last 120 days, she claimed it wouldn't be an issue.  I also spoke with compliance and they didn't think it would be a problem, but I cannot help but think it will be an issue.  I think I'll make another couple phone calls tomorrow.  I have thus far not given them any advice.  Thank you for your advice.

Mar 2, 2011 2:26 pm

Sounds like you're spinning your wheels quite a bit for $50K.  I'd advise them to speak with their attorney and if they are still inclined to get an account opened proceed.  Also be sure to document everything just in case.  Until then, I'd divert my efforts to uncovering bigger fish without those issues. 

Mar 2, 2011 2:27 pm

*double entry*