Your IRA: Is it shielded from creditors in Chapter 7 bankruptcy?

On behalf of The Rollins Law Firm posted in Chapter 7 on Wednesday, June 18, 2014.

Few people who are involved in litigation expect that their legal matter will wind its way through various court levels. Fewer still ever anticipate that it will ultimately end up before the United States Supreme Court, with the decision of that tribunal broadly extending its implications to similar matters across the country.

That is precisely what happened in the case of a Wisconsin resident, who filed for Chapter 7 bankruptcy several years ago. A central issue in that bankruptcy subsequently resulted in the woman’s case weaving its way through multiple appeals and inconsistent court rulings.

The matter was finally resolved earlier this month with a Supreme Court ruling commanding broad relevance across the country, including in Mississippi.

The central issue in the case centered on a retirement account that the woman’s mother had established years earlier and subsequently bequeathed to her daughter through inheritance. The woman claimed that the funds in the IRA were off limits to Chapter 7 creditors. They obviously argued otherwise.

The Supreme Court’s ruling backed the creditors’ position, with the Court holding that the rationale for categorizing an IRA as an exempt asset beyond the reach of creditors in bankruptcy disappears once that retirement vehicle is inherited.

As noted in an article discussing the decision, the Court’s ruling has no bankruptcy-related effect on IRAs of original owners. Rather, it applies only to accounts transferred through inheritance.

Many Mississippians and other persons across the country might want to know more about this recent ruling, given that it is likely to have a widespread effect. After all, IRAs are a central feature of savings plans for millions of Americans, and many such instruments are passed along to subsequent generations of family members through beneficiary designation forms.

An experienced bankruptcy attorney can answer questions and provide relevant information on exempt assets and other bankruptcy-related matters.

Source: Source: Source: Forbes, “Supreme Court finds inherited IRAs not protected in bankruptcy,” Deborah L. Jacobs, June 12, 2014

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