13 and Public Employee Vac Credits/exempt?

[sheilaE]

Question: My husband recently retired in CA from a public service career and received a large check for all his vacation credits. According to CA exemptions, vacation credits for public service employees are exempt BUT when we met with our attorney to talk about the this he said doesn't matter...that the trustee will pull every trick out of their bag to GET that money and that we should fix broken things in and around the home and wait to file in 6 months. HUH? What good are exemptions if they aren't really exempt??? The plan 30 years ago was to have this money for our retirement instead of having to get it spent quickly, but the plan wasn't to be filing BK either

He mentioned he had never had this come up before and he didn't know what the trustee would say. He also said he likes to go in with everything in order-which to us sounds like he won't fight for us and that he doesn't want to make waves with the trustee, wants it to be easy and done with.

So my question is: Are exemptions REALLY exempt or can the trustee change the rules?

[HHM]

Try talking to some other attorneys.

I will take your word that the Vacation Credits of Public Service Employees are Exempt (don't feel like looking it up, although that seems like an odd exemption to be that specific).

The risk here is how that exemption gets interpreted. Once the credits are "cashed out", it is very likely the courts hold that the money is no longer "vacation credits" and loose its exempt status, or that the money looses its exempt status once it is commingled with other funds.

You might be able to just dump the funds, or a portion of them, into an IRA.

Okay, I looked it up.

(a)As used in this section, "vacation credits" means vacation credits accumulated by a state employee pursuant to Section 18050 of the Government Code or by any other public employee pursuant to any law for the accumulation of vacation credits applicable to the employee.

(b)All vacation credits are exempt without making a claim.

(c)Amounts paid periodically or as a lump sum representing vacation credits are subject to any earnings withholding order served under Chapter 5 (commencing with Section 706.010) or any earnings assignment order for support as defined in Section 706.011 and are exempt to the same extent as earnings of a judgment debtor.

I am willing to wager that once cashed out, they lose their exempt state. I read this as saying that a creditor cannot force the cashing out of vacation creditors. But once the debtor cashes out the credits, no longer exempt.

There is probably case law on the subject that will clarify. It is unlikely this is the 1st time this issue has ever come up.

[mommyof3]

Thank you HHM. If we put the funds into an IRA, wouldn't that be labeled as trying to hide funds and wouldn't the trustee still be able to go in and take it?

[HHM]

It's a grey area to be certain. But debtors are allowed to maximize exemptions. Speak to some other attorneys, sounds like you need someone who is willing to assist with pre-bankruptcy planning beyond the default advice of "spend it on necessary items."

[momofthree]

Also, keep in mind that CA has a very generous wildcard exemption as long as you don't have home equity. This wildcard (around $21k) can be used to exempt cash.