An unemployed pharmacist in Lincoln, Nebraska lost his battle to save his home from the claim of the Chapter 7 Trustee during a bankruptcy court hearing on January 5. In Re Bozarth, Bankruptcy Case Number 10-42629. The homeowner filed his own case and was not represented by an attorney at the hearing. The homeowner testified that he transferred the home into a “self-directed” Individual Retirement Account approximately 10 years ago upon the advice of his banker. The homeowner’s bankruptcy schedules failed to list the home which was valued by the Lancaster County Assessor at $95,400.
Bankrupty Judge Thomas Saladino questioned how an IRA account could even own real property. Chapter 7 Trustee, Joseph Badami, originally filed a report with the Court indicating that there were no assets to claim, but two months later he withdrew that report upon receiving information that Bozarth, in fact, was the owner of a home.
It does not appear that there was any intention of the debtor to conceal the home from the Court, and Bozarth stated that it was his understanding that the transfer of the home to a self-directed IRA account was sufficient to protect the home from creditors. Now it appears that his home will be sold by the Trustee to pay back his debts.
Chapter 7 Trustees are paid on commission–they have an incentive to investigate a debtor’s assets and property transfers. The first duty of a bankruptcy attorney is to determine which assets may be at risk to a claim by a Chapter 7 Trustee. The risk must be explained to the client, and if the risk is too great the debtor should be advised to consider filing Chapter 13 or to not file bankruptcy at all.