Question on Cash exemptions

[OregonMom]

Hi, I am in Oregon and getting ready to file a ch 7. I looked online and it said oregon has exemption of $7500 in bank accounts. Does this mean I can have up to $7500 in an account and not have it taken? I need to know because I have a check coming to me in the amount of $2500 for a 401k plan that I had to close since I am no longer employed with the company and I really need the money to replace a car I am letting go in the bankruptcy. I know I should roll over the money but it is not an option right now. I cannot afford the $400 payments on my car along with the $400/month in gas it is consuming, so I want to use that money to buy a used car when the BK is done. Am I ok to just deposit it? If I cash is somewhere won't they ask where the 401K went? Thanks for help!

[magyar123]

If the Oregon exemption is really $7500, and your 401k deposit doesn't put you over that amount, it's safe.

[Phillymanhere]

Just a suggestion to remember. You're going to pay taxes on that $2,500 you get out of the 401K plan. So when you calculate your tax liability, know that you're doing to have to pay an additional $600 or so in taxes.

Also, for purposes of the means test, etc., I'm thinking you're going to have to add $2,500 to your salary ... Are you close to the median for oregon?

Make sure you run this by some local bk attorneys. You can set up 3 or 4 free consultations and give them the details of what you wanna do. You should be able to get good guidance before you even commit to hiring any one of them.

Good luck.

[danaf]

I would have waited until after the bk to do this since 401k $ is exempt. Phillyman has great points. Hopefully cashing that out doesn't put you over the median for your state...if it does, you may have to wait to file. And it doesn't matter where you cash it - or if you put it in the bank - the trustee will know about it from your 'statement of financial affairs'. Sounds like your state exemption covers it, so you don't have to worry there.

[OregonMom]

The $2500 is after state and federal taxes are taken out and we actually make about $15,000 less than the max we can so it doesn't affect the means test. Thank you! I will talk to my lawyer next week.

[WhatMoney]

You may be misreading the Oregon Revised Statues. The $7,500 exemption applies to exempt funds as defined below:

Exempt wages, Social Security benefits (other than SSI), welfare, unemployment benefits and disability benefits when placed in a checking or savings account (up to $7,500).

It does not just apply to any cash you have on hand in your checking account up to $7,500.

A 401K plan is exempt, unless you withdraw it before retirement and pay taxes on the withdrawl. At that point I believe the money you permanently withdraw has lost any protection UNLESS you can prove the funds deposited are identifiable as prior 401K exempt funds. You can read the statues below and see if that is how you interpret this. I'm really not sure about this - but any good OR BK lawyer should be able to answer this for you.

18.348 Certain funds exempt when deposited in account; limitations.

18.358 Certain retirement plans exempt from execution; exceptions.

2) Subject to the limitations set forth in subsection (3) of this section, a retirement plan shall be conclusively presumed to be a valid spendthrift trust under these statutes and the common law of this state, whether or not the retirement plan is self-settled, and a beneficiary’s interest in a retirement plan shall be exempt, effective without necessity of claim thereof, from execution and all other process, mesne or final.

(3) Notwithstanding subsection (2) of this section:

(a) A contribution to a retirement plan, other than a permitted contribution, shall be subject to ORS 95.200 to 95.310 concerning fraudulent transfers; and

(b) Unless otherwise ordered by a court under ORS 25.387, 75 percent of a beneficiary’s interest in a retirement plan shall be exempt from execution or other process arising out of a support obligation or an order or notice entered or issued under ORS chapter 25, 107, 108, 109, 110, 416, 419B or 419C. [Formerly 23.170]

[OregonMom]

Well we have retained a lawyer, but we haven't finished paying the fee for the bankruptcy so essecentially we really haven't filed yet. So maybe this makes a difference. The money is going to finsih paying for the lawyer and hopefully the rest will go to buy a cheap car so we can let our expensive SUV go. I am calling our lawyer tomorrow to figure this all out.