Bankr. E.D.N.C.: Crampton v. Kohler- Conversion of Non-exempt funds into an Exempt IRA was not a Fraudulent Conveyance

Summary: After consulting with a bankruptcy attorney, the Debtors sold personal property at auction, receiving $14,000 in proceeds. Two days before filing Chapter 7, the Debtors used $12,000 to fund IRAs and the remainder for insurance and vehicle repairs. The Trustee sought to avoid the contributions to the IRAs as fraudulent conveyances. Following, Ford v. Poston, 773 F.2d 52, 54 (4th Cir. 1985), the “[m]ere conversion of property from non-exempt to exempt on the eve of bankruptcy-even though the purpose is to shield the asset from creditors-is not enough to show fraud.” The Trustee argued that converting non-exempt property to an IRA is fraudulent unless it is done for the purpose of contributing to the debtor’s overall retirement plan. The bankruptcy court rejected this argument, finding that the Debtors had historically had retirement accounts, had drawn down those accounts previously and that the contributions were conservative. That the contribution took place on the eve of the bankruptcy filing does not necessarily raise this transaction to fraudulent per se. For a copy of the opinion, please see: Crampton v. Koehler- Conversion of Non-exempt funds into an Exempt IRA was not a Fraudulent Conveyance.pdf