If you file for bankruptcy protection, federal and state law governs the treatment of your assets, including any money you have deposited into a health savings account (HSA). You must take into consideration the laws of your state when requesting a specific exemption for any money you have in an HSA.
Health Savings Accounts
You set up a health savings account to accumulate money towards the payment of medical expenses. The federal tax rules allow you to contribute the money before it is subject to income and payroll taxes. There are limits on the amount of money you may contribute each year to the HSA. In 2012, the limit for individuals was $2,900. You may withdraw the money tax-free as well, but may only spend it on qualified expenses that are not otherwise covered by your health insurance; these expenses may include medical office visits, hospital stays, prescriptions, and physical therapy.
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Filing for bankruptcy allows you to claim certain assets as exempt from the bankruptcy estate, and thus protected from seizure by the trustee to pay debts. Under the federal bankruptcy code, IRAs and certain employer-sponsored savings accounts (ERISAs) are exempt, however, the law does not specifically exempt HSAs. Whether you may claim the exemption depends on the state where you live. Certain states, such as Idaho, have "opted out" of the federal exemption rule and do not allow bankruptcy filers to protect their HSAs from inclusion in the bankruptcy estate, although it does exempt payable health insurance benefits. Florida, Texas, Tennessee, Indiana, Mississippi as well as other states specifically allow the HSA exemption.
Claiming the Exemption
For any assets or property to be exempt in bankruptcy, you must claim the exemption. This means listing the asset in your petition for bankruptcy, the pleading that opens a bankruptcy case. If you do not list an HSA as a claimed exemption, the trustee has the right to seize it, whether or not federal and state law specifically exempts the HSA. If you neglect to claim the HSA as exempt, you may file a motion to correct your listing with the bankruptcy court; the exemption will then be subject to a court ruling.
Selecting Exemption Schemes
For HSAs and all other assets, some states allow you to choose between federal and state bankruptcy exemptions. For example, if you live in Arkansas, Connecticut, the District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, Texas, Vermont, Washington, or Wisconsin, you can select either state or federal law for exemptions. By the federal bankruptcy reform of 2005, however, you must have lived in the state for at least two years to choose the state exemptions.
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