HSA Account & Bankruptcy

[LimpDisc]

So we signed our BK documents today with the hope of being filed sometime tomorrow. Turns out that with our HSA accounts having both employee & employer contributions, the funds are 100% non exempt. The attorney said if the funds are from us they would be 75% exempt. The minute our employer put any funds in they commingle and the trustee would take all the money. We now have to spend $4,500 on acceptable items. We ended up paying December & January mortgage payments and our attorney fees out of the HSA. That wiped out $3,800 already.

So stupid that we have to drain our health care savings for BK!!!

[Jammed]

Is this just the local rules for your state? What state are you in? After researching HSAs, I thought they were always protected - I never saw any information saying that if the employer contributed to it it becomes non-exempt. I've already made my 2010 benefits elections and elected to put in almost $5,000 into my HSA with my employer putting in about $1,200.

[LimpDisc]

Is this just the local rules for your state? What state are you in? After researching HSAs, I thought they were always protected - I never saw any information saying that if the employer contributed to it it becomes non-exempt. I've already made my 2010 benefits elections and elected to put in almost $5,000 into my HSA with my employer putting in about $1,200.

Colorado.

I also thought they were exempt. Make sure you talk to your attorney about it.

[aces67]

We're in TX and our HSA was exempt. Did your attorney tell you to pay your mortgage out of the HSA?

According to my HSA papers that's ILLEGAL. An HSA is for medical and dental related expenses ONLY persuant to IRS rules.

[LimpDisc]

We're in TX and our HSA was exempt. Did your attorney tell you to pay your mortgage out of the HSA?

According to my HSA papers that's ILLEGAL. An HSA is for medical and dental related expenses ONLY persuant to IRS rules.

It's not at all illegal to use HSA funds for things other medical and dental expenses. You just take a tax hit when you file your returns. I'd rather take the tax hit instead of losing it all to the trustee.

Yes, this was all done on the advice of our attorney.

[JEM]

Wow! That stinks! Sorry.

It does seem "wrong" that you have to drain an HSA to file bankruptcy.

[aces67]

It's not at all illegal to use HSA funds for things other medical and dental expenses. You just take a tax hit when you file your returns. I'd rather take the tax hit instead of losing it all to the trustee.

Yes, this was all done on the advice of our attorney.

Oh I see they are turning it around and treating it as taxable income then and not pretax dollars. Still though that sucks. That's a convenient way to cover medical expenses and does help some on taxes.

[LimpDisc]

Oh I see they are turning it around and treating it as taxable income then and not pretax dollars. Still though that sucks. That's a convenient way to cover medical expenses and does help some on taxes.

It beyond sucks! We were stunned when the attorney told us the trustee would take it all. Figure it will cost us $500-$700 on our tax bill next year. At least we will be able to quickly rebuild it with the employer match starting on January 01, 2010.

[cupcake]

It's not at all illegal to use HSA funds for things other medical and dental expenses. You just take a tax hit when you file your returns. I'd rather take the tax hit instead of losing it all to the trustee.

Yes, this was all done on the advice of our attorney.

Did you check about any possible withdrawal penalties?

I live in Michigan and, like the other posters, my HSA was also fully exempt. I hope you are getting good information from your attorney.

[ItsJustMe]

Ours wasn't even mentioned . It has $2K in it, and the deductions were included in our expenses, but no one said a word about it being spendable 'savings'.

[LimpDisc]

Did you check about any possible withdrawal penalties?

I live in Michigan and, like the other posters, my HSA was also fully exempt. I hope you are getting good information from your attorney.

I know I'll be hit with taxes & penalties. Really sucks it's that way in Colorado. My HSA would have been 75% exempt without any contributions from my employer. The minute my employer made contributions the funds commingled and were 100% non exempt.

"There is no exemption in the 2005 Act specifically protecting HSA balances from the reach of bankruptcy creditors"

It is what it is at this point. I've already moved on and will deal with the penalties next year.