Tax refund, medical bill and filing Chapter 7

[hormonal]

My husband and I are expecting a baby in March. We owe our medical bills for the delivery 5 weeks before delivery. We just filed our taxes and we're supposed to be getting about $5k back from overpayment and EIC. We owe a balance of $2300 to our midwife and she wants it before services are rendered. Obviously, I need the medical care and don't want to wind up having baby in the ER because we can't pay our bill. We had planned to file BK in the next few weeks, but now I don't know what to do. We need to be able to spend the tax money paying the medical bills and honestly, our car is likely to get repo'ed before we get the filing done, so it would be nice to buy a beater (something under $1000) to get us by.

So my question is, and I will consult the lawyer but I need to know very soon if I can pay my midwife, can I pay the midwife with the refund money or will I get in trouble for having spent it? What expenses could we use it for and not get in trouble? We make less than $2k in income and already have one child. My husband lost his job last year and had to take a much lower paying one.

So do we sit on the return or can we use it to help us out?

[BKDefender]

Take your tax return, go to your bank and open a Roth IRA account. Deposit the whole thing into your Roth IRA. File bankruptcy and you'll get to keep whatever is in the Roth IRA. You can fund up to $5k/year per person so if you get more than $5k, split it into two and open a Roth IRA for you and your husband.
This is based on the assumption that your state allows you to exempt Roth IRAs - just about every state I can think of does, but you should still check.

Then after filing BK, wait a couple days to ensure everything was filed correctly, withdraw $2,555.56, pay 10% penalty ($255.56) for withdrawing it before 5 years, and you'll get a check for $2,300 to pay your midwife.

If you pay your midwife BEFORE you file BK and you file BK before she renders services, then she's holding a deposit that the trustee will make her give to him if you can't exempt it.

--William

[hormonal]

Well, Missouri law exempts IRAs and Roth IRAs with the following provision: " If proceedings under Title 11 of United States Code are commenced by or against the debtor, no amount of funds shall be exempt in such proceedings under any plan or trust which is fraudulent as defined in Section 456.630 of the Missouri Code, and for the period such person participated within 3 years prior to the commencement of such proceedings. "

Any clue what that means?

[river147]

Does this mean a roth ira cannot be funded 3 years prior to filing bk 7 ?
Does anyone know the answer to this for missouri filiers?

[BKDefender]

I don't know the answer to missouri filers, but most states have a fraudulent transfer act, usually the UFTA (Uniform Fraudulent Transfer Act.) Nevada's period is 2 years for a creditor to recover funds that it alleges were transferred and that the creditor can sue in court to try and prove that it was fraudulent.

You'll need a Missouri attorney to answer the question as to whether in MO you can convert non-exempt assets to exempt assets on the eve of bankruptcy.

--William