Can you set up a health/medical savings account with tax refund prior to filing BK?

[NewPage]

My husband and are disagreeing. We have a tax refund coming that needs spent before BK filing. We have valid expenses to pay. However he wants to take some of it and establish a medical savings account.

I am of the opinion that that would be frowned upon by the trustee; I don't see it as a valid expense for this purpose.

????

[AngelinaCat]

I can't see where that would be a problem. In my opinion, I think it is a legitimate expense. I have an HSA that was set up well after we were Discharged, and it has made all the difference in my mental state that I do not have to worry about where the money is going to come from when I have to make a co-pay to a medical provider, or for a test, or for my prescriptions.

But if you have an attorney, this is an excellent question to ask.

Perhaps other members from Oregon will chime in with their opinions/experiences.

[despritfreya]

We have a tax refund coming that needs spent. . . he wants to take some of it and establish a medical savings account. I am of the opinion that that would be frowned upon by the trustee.

I do not believe the issue is whether or not the Trustee will "frown" upon it. I believe the issue is whether or not such a contribution is protected by some exemption. In my district there is no exemption for a HSA. It is treated like any other bank account and is not exempt. Anyone who has $$ in a self directed HSA will lose the $. I believe you need to find out if you can claim funds deposited to and sitting in the HSA as exempt.

Des.

[tcreegan]

Hi NewPage,

I am of the opinion that that would be frowned upon by the trustee; I don't see it as a valid expense for this purpose.

Valid expense is not the problem, unless they can be exempted, funds sitting in an account are a cash asset that can be recovered by the trustee.

The problem won't be the trustee frowning...it will be their eyes lighting up when they see a cash asset.

Scanning the ORS I didn't see anywhere that a health savings acct was exempt. Lots on retirement plans, but no HSAs

OR does have an exemption for $7,500 in an account if the money was covered under these OR statutes: ORS 18.358, 18.385, 238.445, 344.580, 348.863, 407.595, 411.760, 414.095, 655.530, 656.234, 657.855 and 748.207

So at the risk of sowing seeds of marital disharmony, I will side w/ you, setting up an account is probably not a good idea.

Tom in Colo

[oregonpilot]

What i understand is the 7500. cash exemption is only for the sale of exempt assets that were sold (proof??)and you can prove the cash you have is from those sales.
Have no answers on the HSA cuz i sure didn't have any of those...but sure wish i had.

[olivies]

I do not believe the issue is whether or not the Trustee will "frown" upon it. I believe the issue is whether or not such a contribution is protected by some exemption. In my district there is no exemption for a HSA. It is treated like any other bank account and is not exempt. Anyone who has $$ in a self directed HSA will lose the $. I believe you need to find out if you can claim funds deposited to and sitting in the HSA as exempt.

Des.

Great. Now I'm worried because it's the first year DH's employer has offered the HSA thru payroll. So we jumped at it. They give us a preloaded visa card, up to the amount we selected ($3500 max- which is what we opted for) and they take weekly payroll deductions of $134 to pay for that. It's not cash we have access to- there is no cash withdrawal option. Only point of sale at the doctor's office- and we've used $700 in January alone. Is this something I need worry about the UST objecting to next?

[despritfreya]

Now I'm worried because it's the first year DH's employer has offered the HSA thru payroll. So we jumped at it. They give us a preloaded visa card, up to the amount we selected ($3500 max- which is what we opted for) and they take weekly payroll deductions of $134 to pay for that. It's not cash we have access to- there is no cash withdrawal option.

This is why I was careful to state a "self directed" HSA. To date, I have not seen Trustees in my district go after HSA's that are controlled by an employer. I have only seen it happen with a client who was either self employed (through a closely held entity) or a client who set up an account through an independent insurance plan. I simply do not know if your situation means a Trustee can't get to the $$$, or if there is an independent exemption in your State.

Des.

[AngelinaCatHub]

Great. Now I'm worried because it's the first year DH's employer has offered the HSA thru payroll. So we jumped at it. They give us a preloaded visa card, up to the amount we selected ($3500 max- which is what we opted for) and they take weekly payroll deductions of $134 to pay for that. It's not cash we have access to- there is no cash withdrawal option. Only point of sale at the doctor's office- and we've used $700 in January alone. Is this something I need worry about the UST objecting to next?

As Des has explained you might be free if you were 'advanced' the 3500 and pay weekly towards that years non taxable account. As far as a self controlled HSA as we have, yes you CAN use it for other than medical. There is a caveat to that though, if you repay it to the "exact Penney, no less, no more within 30 days you are fine. If you do not, you will be taxed and penalized for that amount. This makes a perfect emergency fund for a real emergency. We have never used it that way, but let's say our car broke down and we were in trouble to get it fixed, it would work as a credit card would. If you put that money back fine. If not, the penalty. It helped get us our first tax refund in ten years back. (Although it went into our IRS bill of 17K) 'Hub

[AngelinaCat]

My husband and are disagreeing. We have a tax refund coming that needs spent before BK filing. We have valid expenses to pay. However he wants to take some of it and establish a medical savings account.

I am of the opinion that that would be frowned upon by the trustee; I don't see it as a valid expense for this purpose.

????

But it may well be protected if it falls under this Exempt Category:

Personal Property | Bank deposits to $7500 | OR 23.166

Here is the link to the full page of Oregon Exemptions that I found: http://www.bankruptcyinformation.com/OR_exemp.htm

And here is the link to the judge's ruling that created/supports that determination:

http://www.orb.uscourts.gov/Judges/file_attachment/301-36561-rld7_260408_134843.pdf

I do not know if this 'traceability' will work with a tax refund or not, and I certainly am not an attorney. You haven't said if you have an attorney or not, but this definitely is a question for one in your District that is familiar with Oregon laws, the trustees in your District, and the local rules of your BK Court.

Good luck.

[HHM]

HSA's and BK are as follows

If its an "employer" based program it is protected in the sense that it is not part of the BK estate.

If you set up one privately (e.g. as an add on to private insurance) it is NOT protected.