Are IRA withdrawals considered income?

[tay666]

I have come to the conclusion that the only way I am going to be able to pay an attourny and get this whole thing rolling would be to take the money from my IRA.

I know.
I will have to pay penalties and taxes on the withdrawal.
And I know it isn't generally a good idea to use protected assets, especially retirement funds.

But the way things are going right now, I will never get enough cash to pay a lawyer. All the consultations I have done so far are much more expensive than I can afford.
So, would a withdrawal be considered income?
It won't really affect me either way for the means test, as I would still fall well under the median income.
But I don't know how it will affect things when looking at income vs expenses to see what is left over at the end of the month.

[lrprn]

But the way things are going right now, I will never get enough cash to pay a lawyer. All the consultations I have done so far are much more expensive than I can afford.

Are you still paying on your unsecured debts like credit cards? Are you planning to surrender any secured assets (car, house) when you file? If you are, are you still paying on those?

If you have stopped paying your credit cards, etc. and are STILL having trouble saving extra money to pay a bankruptcy lawyer, then filing bankruptcy may not help you very much. Is this the situation for you?

So, would a withdrawal be considered income?

Yes, an IRA withdrawal will be considered income if you take the money out during the six months before you file.

[tay666]

Are you still paying on your unsecured debts like credit cards? Are you planning to surrender any secured assets (car, house) when you file? If you are, are you still paying on those?

If you have stopped paying your credit cards, etc. and are STILL having trouble saving extra money to pay a bankruptcy lawyer, then filing bankruptcy may not help you very much. Is this the situation for you?

We quit paying all that stuff back in March of 2007.
I am just able to pay our necesities with what I earn. (necesities being house payment, utilities, groceries, gas, and the co-pays on my wife's meds)
My wife has not worked since May of 2007.
She just finished school and was looking for a new job when she developed a few more medical conditions that kind of have her out of the job market until the meds are all worked out and she is back to being functional again.
(she is bipolar, and was just diagnosed as diabetic as well, so, it may take a little while to find the right balance of medication for both conditions(

We are in a somewhat odd situation.
We have equity in the house that our exemptions won't cover. So when we do file a CH7 the trustee will seize the property. Fine with us, as we do want out of here. But the good thing is we will get the $10,000 cash from our homestead exemption (Ohio) if the trustee actually manages to sell it at a good price. So we don't just want to let the house go, as that would be loosing out on that equity. (which for us is quite a chunk of change since we only grossed $23,000 last year)

Once we are out of the house, there are somes place we can get that will save us a little more money. The rental price is about the same as our mortguage ($400 a month) but they include some of the utilites like water, sewer and trash. So we wouldn't be paying those.

So right now, it is kind of a catch 22.
If we stay here, there is no way to save, as any time anything comes up I have to dip into what little I have managed to put aside for a lawyer.
(things like new meds for my wife, or the exhaust getting ripped off the car on my way to the last consultation I went to)
If we move, I can gain about $100 wiggle room in our monthly bills.
But by the time I save enough for a lawyer, the house will be in forclosure and we will loose any chance of recapturing that homestead equity.

Which is why I am considering withdrawing money from my IRA to pay for a lawyer (once I find one I am comfortable with that doesn't charge outrageous fees)
I would be able to replace that money once(if) we realize the benefits of the homestead exemption. Which I know, could be a year or more after we file, as asset cases take a whole heck of a lot longer to resolve.

[keepmine]

How much equity do you have? And, forget about the trustee trying to get top dollar. They'll price it to move fast. They've no intention of letting it sit and accure property taxes and insurance plus, paying utilities while it's vacant.

[tay666]

Well, we owe $17,000
Property tax valuation on the house is $46,000.

Weather the house will actually realize anything near that price is debatable.
But the one common theme I have been hearing in all my consultations so far is that the trustee will look at that tax number and seize it, regardless of the actual worth.

[keepmine]

Were I you, I'd not file bk yet. Your situation is not stable. Your income is low and you have these ongoing medical issues {bills} with your wife.
Think about this-sell the house yourself and promptly, place some of the proceeds in an asset like an IRA or annuity product or anything else that your state exempts from creditors and use the rest for ordinary living expenses.
This will tide you over while you try and find a higer paying job. BK is always on the table. You just may be trying to file prematurely.

[tay666]

I don't know how much longer we can wait.
My wife already has 2 judgements against her.
Who knows when more of these will finally find there way to court.

Also, even if we put the house on the market, we are probably looking at a long wait for it to sell. The only things in this city that are moving in less than a year are houses $5,000-20,000 and houses $70,000 and up. Houses priced between $20,000-$70,000 are just sitting. No one wants them. They either want dirt cheap fixer-uppers or really nice houses.

As for finding a higher paying job, there aren't any here.
I am already working in one of the best paying shops in the area.
That, and I can't really afford to leave the job I am in oow as there is no way we could cover the wife's perscriptions without the insurance coverage I currently have. Then there is the whole question of if a new insurance carrier would even cover her pre-existing conditions.

I know it sounds like I am making excusses.
but I have been here, reserching all this stuff for over a year now.
I have analized our situation from so many differnt angles and options over that time.
I realize right now, things are very thin. And idealy we should be in a little better shape before filing. But on the flip side, once my wife is able to work and finds a full time job, we will basically double our income and then risk the issue of having more than $100 disposable income and being forced into a CH13.
Also, if we do file now, we will improve our situation (if only by a small amount). With less utility bills, and probably the remaining ones would be les costly than what we are currently paying. So we would be looking at roughly a 10% savings of our current living expenses.
We are already in better shape than we were 6 months ago.
We were in deficit spending then, and I had to selll off personal items just to buy gorceries.

So, from my perspective, we are already on our way back up. (albeit slowly)It's just a matter now of putting all the old debt behind us, getting out of this house. and finally being able to look toward the future.
And I think not having all the collection calls, and the stress of waiting for the BK to finally start, will actually help my wife's health. That stress combined with her bipolar condition are not a good mix. Her shrink has mentioned that several times, as a contributing factor to her ongoing need to have her meds adjusted so much. Which is why I try to shield her from as much of it as I can. Though I know it still weighs on her.

[chloe0724]

You can pull from your IRA to pay, but you will incur a 10% penalty, have to pay federal and state taxes on the money, and it will count as ordinary income on your next years taxes. Check with whoever has your IRA and see if you are able to replenish any money pulled out early before a certain time frame. If you are able to get cash from your house, you may be able to replenish the money you took out early and be able to avoid all the penalties.

[momof5]

Well, we owe $17,000
Property tax valuation on the house is $46,000.

Weather the house will actually realize anything near that price is debatable.
But the one common theme I have been hearing in all my consultations so far is that the trustee will look at that tax number and seize it, regardless of the actual worth.

Our tax number(assessment: is about $27,000 more than our appraisal) We just had new reassessments and there is no way we could sell our home for that amount. The trustee will look at how much your home might sell for (actual worth) not what your town bases your tax rates on.

[Yankeegirl]

Once you withdraw money from your IRA, you have 60 days to put it back in. If you do this, you will receive 2 tax forms the following year - 1099-R showing the withdrawal and a 5498 showing the deposit. They will offset each other.

[tay666]

Our tax number(assessment: is about $27,000 more than our appraisal) We just had new reassessments and there is no way we could sell our home for that amount. The trustee will look at how much your home might sell for (actual worth) not what your town bases your tax rates on.

That's what I figured also.
But so far, all the crappy attourneys I have talked to have said the trustee will take one look at the balance due, and the county tax assesment and want the house.

Like I said, I am fine with that.

My problem right now is paying a lawyer.
Not too worried about the tax hit next year. IF anything, it would help if the trustee decides he wants next years tax return (so far my consultations have not yeilded a concensus on that issue)
If my wife is working we will be able to pay any taxes due.
If she isn't, the earned income credit should cover it.

Also.
Thanks to everyone who has responded so far.
Always good to get more input and keep my mind working on different angles of things.

[CindyLou]

The trustee may not want the house because once its sold, realtor fees are paid, and you get your 10,000 it may not be worth the trouble! I agree with the person before that said try and sell it yourself and put the money away. I also agree with the one that said BK may not do you any good if you can't pay your bills anyway.

BTW, those low housing prices are CRAZY. Here in SoCal those are downpayment figures..... I paid 93,000 for my first house back on Louisiana and it was VERY NICE!!!! Here it would be 800,000 easy. Sorry to get off track.

Good luck and keep us posted.

[magyar123]

Were I you, I'd not file bk yet. Your situation is not stable. Your income is low and you have these ongoing medical issues {bills} with your wife.
Think about this-sell the house yourself and promptly, place some of the proceeds in an asset like an IRA or annuity product or anything else that your state exempts from creditors and use the rest for ordinary living expenses.
This will tide you over while you try and find a higer paying job. BK is always on the table. You just may be trying to file prematurely.

So what if the original poster wants to file prematurely? Who are you to judge what is "premature"?
People file when the situation is not stable, and have ongoing medical issues, and when their income is low.

[tay666]

So what if the original poster wants to file prematurely? Who are you to judge what is "premature"?
People file when the situation is not stable, and have ongoing medical issues, and when their income is low.

I don't understand the seeming hostility here?

I asked a question, and keepmine answered it and gave what she considered to be good advice.
That is why I come here.
To have questions answered and to learn from people who have been through this and who have helped others through this.

Personally I like, and encourage responses like that.
If I hadn't already considered most of that already, it would have been great food for thought. (and it did make me go through things in my head again just to see if I still thought it was a good idea)
Many people have been helped here by similar replies. Pointing out things that the original poster hadn't considered, or didn't even realize could be problems, or solutions.

Ultimately, it is my decision to make, but more input is always good.
Never know when someone will point out something I neglected to consider, or didn't even know about.

[tay666]

The trustee may not want the house because once its sold, realtor fees are paid, and you get your 10,000 it may not be worth the trouble!

That's what I was thinking before I started doing the consultation rounds.
But that seems to be one thing that all the lawyers have been unanimous about. So, it must be something about the local trustees.

BTW, those low housing prices are CRAZY. Here in SoCal those are downpayment figures..... I paid 93,000 for my first house back on Louisiana and it was VERY NICE!!!! Here it would be 800,000 easy. Sorry to get off track.

Good luck and keep us posted.

That's what happens when you live in a state that just raised it's minimum wage to $7.00 an hour.