As the result of no legal advice or poor advice, a couple threw away $36,500 and in the process lost their discharges in bankruptcy.
The disabled husband liquidated his $36,500 pension fund and got net proceeds of about $28,000. The $8,500 difference, his first loss, was presumably due to withholding taxes resulting from the premature withdrawal from his retirement account.
According to the opinion by Bankruptcy Judge Paul M. Glenn of Jacksonville, Fla., the husband proceeded to give $5,000 in cash to his wife. At trial, she testified that she gave most of the money away as gifts to family.
The husband made a $4,000 cash gift to his church, bought a car for $3,900, paid a $1,000 debt, and gave $3,000 to his attorney as a retainer. The husband and wife filed a joint chapter 7 petition two months after liquidating the pension fund.
In his Feb. 8 opinion, Judge Glenn said that the husband might have been entitled to exempt the entire $36,500 had it remained in the retirement account. His opinion is important for consumers’ lawyers because it collects authorities holding that pension funds lose their exempt status when withdrawn and transferred to a general bank account. Judge Glenn also cites cases that show how a debtor can withdraw funds from a pension account while retaining the exemption.
The couple should have known better. The husband had filed bankruptcy on four previous occasions and had a lawyer in two of his cases. The husband’s trial testimony was not calculated to garner the judge’s sympathy because he didn’t recall how he had spent several thousand dollars.
Judge Glenn denied both the husband’s and the wife’s discharges. The husband lost his discharge under Sections 727(a)(2)(A) and 727(a)(4) for making transfers with intent to hinder, delay or defraud creditors and for making a false oath because he did not disclose the transfers in his schedules and statement of affairs.
The wife lost her discharge for making a false oath because she disclosed neither the $5,000 from her husband nor the gifts she subsequently made.
One wonders whether Judge Glenn would have given the couple their discharges had they simply disclosed the transactions. They could have argued that there were no fraudulent transfers because the money they spent was pension funds that were beyond the reach of creditors.