Can I Make A Maximum IRA Contribution To Protect My Cash?

09 Aug Can I Make A Maximum IRA Contribution To Protect My Cash?

I was recently asked if a retirement contribution, made shortly before filing bankruptcy to protect excess cash, would be considered a fraudulent transfer.  I answered “maybe.” 

The closest Massachusetts decisions on this point both ruled that a homestead declaration made shortly before filing were not transfers as intended by the Massachusetts version of the Uniform Fraudulent Transfer Act, as the debtor was merely taking advantage of a lawful protection.  In re Lyons, 355 B.R. 387, 390 (Bankr. D. Mass. 2006) and In re Miller, 113 B.R. 98, 104 (Bankr. D. Mass. 1990).  There’s no guarantee that the same reasoning applies to retirement contributions, although many lawyers recommend this practice.

Retirement contributions were not considered bad faith for a Chapter 13 debtor by Judge Feeney in the case of In re Kimanzi Musili Mati, 390 B.R. 11, 17 (Bankr. D. Mass. 2008), but that debtor was paying the creditors over 50%.  A lesser or zero payment to creditors will definitely be a factor in any bad faith analysis.  A history of making IRA contributions will also figure into the decision.

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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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