Can a trustee put you in prison?

[southernmama]

I did something incredibly stupid and did an IRA distribution without telling my lawyer. Will or can the trustee sentence you to prison?

[despritfreya]

A bankruptcy trustee does not put anyone in prison. If you did something illegal then you can be prosecuted by the appropriate authorities and, if found guilty, be sentenced to prison.

You need to give a bit more detail as to what you did or did not do.

Des.

[southernmama]

I did a large IRA distribution in 2018 and didn’t claim it nor tell my lawyer about it.

[southernmama]

I was not in a good place at all and feel horrible and I’m terrified that I will go to prison.

[kc247]

southernmama My lawyer did not ask to see my bank statements. He asked during my interview phase gathering information if I had any assets or had a lot of money sitting in my accounts. I believe he asked this only due to if you had loan accounts and bank accounts at the same financial institution, you then run a risk of that bank freezing funds to payoff loan accounts. By that being said and my lawyer hinting around about this, don't have your funds sitting in an account you have loan accounts on especially like a credit union. For instance if you have $$$ in an account, that you also have like a personal loan, credit card installment loan, etc, take those funds out, change your direct deposit to another financial institution. I also told him I had a good amount in my 401k plan at work and the lawyer didn't care about that either. I don't know if this helped any, but I would think you shouldn't get in trouble about this. I'm not a guru either and the best way to get this answered ask your lawyer, "are you able to take ira distribution" I'm unsure if this is coming from your 401k plan from work or from your personal account. That also could be up to you and the IRS far as getting taxes cut out.

[despritfreya]

I did a large IRA distribution in 2018 and didn’t claim it nor tell my lawyer about it.

Nothing to be terrified of as there is nearly always a solution.

I assume this was before you filed. What did you do with the money? Was it deposited into another account? Did the Trustee ask for bank statements? What bankruptcy issues have been raised - if any?

Depending upon when you took out the money and how you spent it, this seems more like an issue between you, the IRS and the Ohio tax agency. Maybe talk to a CPA about filing an amended tax return.

Des.

[southernmama]

That’s the stupid and scary part is I did it during. We filed on September 2016 and it has been the hardest road we’ve been through. I relapsed on my gambling addiction and spent it all. I just know that our trustee is going to dismiss our case, which is what I deserve, or pursue charges.

[despritfreya]

That’s the stupid and scary part is I did it during.

I think you are making a mountain out of a molehill. The IRA account is most likely an exempt asset. You taking out the funds post filing and, presumably post Confirmation, is probably not an issue as it relates to the bk assuming your Plan payments are current. Not reporting the early withdrawal on the tax return is a tax issue that can be corrected. Talk to your attny and your accountant - don't be bashful.

Stop losing sleep over this. It is more important to get a handle on the gambling issue. Focus on things that really impact your life and the lives of your family and friends.

Des.

[justbroke]

I agree with despritfreya . I too pulled money out from a 401(k) to deal with some major issues, and it was not a problem. First, the Chapter 13 Trustees usually don't care too much about the day to day survival of a Chapter 13 debtor. In other words, you didn't incur debt and you didn't miss any payments, so they are happy.

As Des wrote, the key is the penalties on the early withdrawal. I can't add anything else to what Des wrote regarding the other issues. Take care. Life happens.

[southernmama]

Just spoke to my paralegal, which is who I have spoken to 99.99% of the time, and I have a meeting with them tomorrow morning. She said most likely the Trustee will move to dismiss my case and can also move to have Bankruptcy Fraud and Tax fraud charges against me.

[justbroke]

Just spoke to my paralegal, which is who I have spoken to 99.99% of the time, and I have a meeting with them tomorrow morning. She said most likely the Trustee will move to dismiss my case and can also move to have Bankruptcy Fraud and Tax fraud charges against me.

That reads like some on the very extreme end.

I think that the worst case, it's simply that you failed to comply with the terms of your Chapter 13 plan. The Trustee could seek dismissal for that. Also, the Chapter 13 Trustee does not prosecute and can only refer to the UST. I don't see where the Chapter 13 Panel Trustee would do that as there really is no "bankruptcy" fraud here.

As for the taxes, talk to your tax preparer, file an amendment, and get on a payment plan.

[southernmama]

I didn’t claim it on my taxes when I turned them in though. So I guess that is tax fraud? My husband knew none of this and I’m thinking we will divorce. My paralegal is very angry with me, understandably, because I wasn’t truthful with them and I’m thinking my lawyer will withdraw from my case. Our Trustee is a shark and he is extremely upset. I’m afraid of the dismissal because they will come get our cars and then the credit card companies will most likely sue or garnish us. I’m extremely terrified but ready to face my consequences.

[justbroke]

If you amend your taxes now, you would be showing your mistake and taking responsibility; rather than having the IRS audit or find out later.

[despritfreya]

Just spoke to my paralegal. . . I have a meeting with them tomorrow morning. She said most likely the Trustee will move to dismiss my case and can also move to have Bankruptcy Fraud and Tax fraud charges against me.

That's just bullshit. Stop talking to the paralegal. The only one who can give you legal advice is the attorney and I trust that the meeting with "them" tomorrow is with the attorney.

There is ALWAYS a way to fix a mistake. If the attorney has no answers find one that does.

Des.

[southernmama]

You’re right, it’s with the attorney. It’s bad but looks a lot worse because I left a job that had a 401k loan of $20k (pre-confirmation) and when I left it, the balance became taxable income. I didn’t know that. So now it look like I took out more than I said I did. Gosh I hope that makes sense. I really thought that I could amend my taxes and get an ass chewing from our Trustee but then the paralegal said our lawyer wants to meet with us tomorrow. I’m hoping it’s not too serious. My husband doesn’t deserve what I did and hate for him to have any harsh penalties.