It is important to discuss with your attorney from the outset of representation which banks you hold accounts at and whether you owe those banks any money. This is because your bank could potentially have a right to take your account funds through what is called a right of set off. Banks can use the right of set off to take the money in your bank account in repayment or offset of your debt owing to the financial institution. Banks won’t always do this, but they can, and the risk being ever present, you will want to be aware of it and plan according.
Can Bank Take IRA Account When You File Bankruptcy San Diego?
When you file bankruptcy San Diego, if you have money in a bank account and you owe a debt to that same bank (for example, you have a credit card with that bank), then the bank can take the money in your account as an offset against (in repayment of) the debt that you owe. For example, if you owe money on a Chase credit card and you have money in a Chase bank account, then Chase can take the money in your account on the day that you file bankruptcy San Diego. A bank can do this only one time, on the day that you file for bankruptcy, and the bank cannot touch your money in the bank after bankruptcy. But what if your money is in an IRA account, can the bank still use the right of set off to take the money in your account? Under San Diego bankruptcy law, if your IRA is truly an IRA account formed pursuant to the Internal Revenue Code governing IRA accounts, then your bank cannot take your IRA account because pursuant to the Internal Revenue Code your financial institution is really holding your money as a trustee.
Bank Holds IRA Funds As Trustee
Under the Internal Revenue Code provisions governing the set up of IRA accounts, the financial institution at which you hold your IRA account holds your IRA account funds as a trustee. The bank acts as trustee, holding the funds for you, the beneficiary, until you reach the age of retirement when you can withdraw the funds without a penalty. This is in contrast to ordinary deposit accounts, in which the bank is free to use the money while on deposit and does not hold the funds as trustee.
Trustee Bank Cannot Offset Debt
Because your bank is holding your IRA account funds as trustee, San Diego bankruptcy law provides that the financial institution may not offset a debt by taking the money from your retirement account in bankruptcy. Therefore, so long as your IRA account was formed pursuant to the Internal Revenue Code provisions governing IRA accounts, then your bank cannot take your IRA account when you file bankruptcy San Diego.