Is it ok to use IRA money to pay attorney fees?

[onthefence]

Hello All-

This is my first post, but have been lurking for around a week or so. Hubby and I are in a situation where filing for CH7 is inevitable, but I have a question about paying our attorney fees - I met with one atty who said do not touch your IRA no matter what, and another who said we could make a withdrawal to pay his fees. Any advice?

Thanks in advance.

PS - your forum has really helped me put things into perspective - and made me feel like less of a louse!

[HHM]

Is it okay, yes. In so far as using your IRA to fund the BK is not going to cause any problems with the BK.

Should you, probably not. But since we are not talking about a large sum of money in the grand scheme of things, it won't matter if you take a withdraw to pay the attorney.

[skweakalee]

Here is an IRS publication for 2009: http://www.irs.gov/pub/irs-pdf/p590.pdf. The law may have changed. Pages 51 and on are particularly informative on early distributions from IRAs.

Sure you can make a withdrawal, but it appears a 10% penalty will be added onto the amount, plus you have to declare the amount withdrawn as income for that year. This 10% tax is in addition to any regular income tax, so you're getting hit twice. If you are on a tight budget, you will want to increase the amount withdrawn to be able to pay taxes on it and the 10% penalty, which in turn increases the amount of the 10% penalty and the taxes, (the back and forth eventually levels off, but the point is you may have to take out a higher amount than just attorneys fees).

I would be wary of a lawyer asking you to take an early distribution: ask him/her about the 10% penalty, the income taxes, and any exceptions that may apply. If he/she cannot immediately tell you why it's okay, I don't think he/she had any right to tell you that it is okay to do so without any disclosures regarding the above. The attorney may have an exception, and that would be totally awesome, so just ask.

DISCLAIMER: THIS IS NOT LEGAL ADVICE. I AM NOT YOUR LAWYER. I AM TWELVE YEARS OLD AND YOU CANNOT REASONABLY RELY ON ANYTHING POSTED ON AN INTERWEB FORUM. THINK ABOUT IT.

[onthefence]

Thanks for the info.

The attorney did mention the penalties that we would have to pay. I know it would probably be better to get the money another way, but I just want to move ahead. Last time I was 3 weeks late on a few CC payments, they called 2 of my brothers-in-law and my mother in law telling them that I should pay my bills! I want to avoid this happening again, (so embarrassing for my husband and me) so retaining a lawyer and filing quickly are important to me.

I feel fortunate to have found this forum - so much helpful advice and support!

[skweakalee]

Thanks for the info.

The attorney did mention the penalties that we would have to pay. I know it would probably be better to get the money another way, but I just want to move ahead. Last time I was 3 weeks late on a few CC payments, they called 2 of my brothers-in-law and my mother in law telling them that I should pay my bills! I want to avoid this happening again, (so embarrassing for my husband and me) so retaining a lawyer and filing quickly are important to me.

I feel fortunate to have found this forum - so much helpful advice and support!

Who called your relatives? If it was a debt collector (a company that collects debts for another, such as a CC company. I doubt it was for a debt 3 weeks past due.) or a CC company using a name other than its own, indicating that a third party is calling, such communication with your relatives appears to be prohibited under section 805(b) of the Fair Debt Collection Practices Act.

From 805b:

"without the prior consent of the consumer given directly to the debt collector ... a debt collector may not communicate, in connection with the collection of any debt, with any person other than a consumer, his attorney ..."

Some states have adopted a set of laws that parallels the FDCPA for CC companies. Ask your lawyer. Where a debt collector or CC company violates the FDCPA, a consumer may be entitled to $1,000 plus attorneys fees and costs. I wouldn't know what the state law penalties are, if any even exist for you. It should be stated that any frivolous suits brought by consumers can result in attorneys fees and costs for the defendant under the FDCPA.

[onthefence]

Indeed it was the CC companies - Capital One and Chase in fact. I will ask my atty. Thanks!

[tobee43]

I met with one atty who said do not touch your IRA no matter what, and another who said we could make a withdrawal to pay his fees. Any advice?

o my.....and,yes, while you are at it give that atty your kids college money as well....

these atty's...some are so terrible!

[HHM]

My sense is the attorney did not "demand" that the OP pay with the IRA, but probably advised that there is no downside relative to the BK to doing so and if its the only way, its the only way. Nothing wrong with that.

I would be a little more skeptical of the attorney who said, no way. Although that is "good advice" it does omit the necessary information to make an "informed" decision.

[tobee43]

My sense is the attorney did not "demand" that the OP pay with the IRA, but probably advised that there is no downside relative to the BK to doing so and if its the only way, its the only way. Nothing wrong with that.

yes, indeed, i know an atty that asked his client to call his 95 year parents and see if he was listed in their will.....TRUE story.

putting that all aside, and not being a smart ass about the situation. i would not even think about going it alone, under any conditions without having an atty...

i would do what i had to to make certain he or she got paid. however, i would like it see the situation handled in a "kinder" for "client friendly" way, under these circumstances for the atty to workout a reasonable payment plan and work with his client than go into their, what may be, there only money for their future.