The Wall Street Journal reported this week on a man whose bankruptcy case has outlived him. And he’s not too sympathetic a character: after defrauding clients of his business out of $19 billion, the man was reportedly put into federal prison.
Sources indicate that the fraudster, Barry Stokes, died in a hospital there before his bankruptcy trustee had been able to work through his case. As of now, reports note that:
- Hidden assets are still missing: This unsavory fellow apparently owned a lot of (somewhat) valuable art but hid it before his death. Most was found, but the trustee is still hunting some of it down. The proceeds from a sale of the art would go to his creditors.
- Liquidation won’t help much: Unfortunately, even though some pieces of the art could be worth upwards of $25,000, the money won’t do much for his debts of more than $30 million.
Fraudster Used Clients’ Retirement Funds to Buy Art
The details of this particular bankruptcy case are heartbreaking. Too often, individuals struggling with debt dip into their retirement accounts in an effort to stave off creditors and avoid filing for bankruptcy. And in many cases, people like this end up in bankruptcy anyway, without any nest egg for their retirement.
In this case, Stokes ran a business that managed people’s retirement funds and skimmed whatever he wanted from those funds for personal purchases. Now, his clients are his creditors in bankruptcy and have filed claims for more than $30 million.
The worst part? Because Stokes reportedly didn’t have much in the way of valuable assets, these people will likely not see much of their retirement money again!
Bankruptcy & Retirement Funds
For the record, retirement funds have a special place in bankruptcy:
- Exempt from creditors: Whether you file for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court typically will not go after your retirement funds during a bankruptcy case. The idea is that these funds will keep you financially sound in the future and so it’s in everyone’s best interest to leave them alone.
- Heavily taxed: What’s worse, people who withdraw retirement funds early face serious tax penalties. That means they don’t get the full benefit of the funds either in the present or the future!
- Irreplaceable: Most of us accumulate money for retirement gradually, over several decades. Using that money for debts can seriously damage your long-term financial health because it’s close to impossible to replenish the supply.
The bottom line about retirement funds: they’re safe in bankruptcy. If your nest egg is the only thing between you and the bankruptcy court, you might want to keep it safe and talk to a bankruptcy attorney about filing a petition.