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Tobias LickerIn a recent US Supreme Court decision, the Justices took a look at the issue of is an inherited IRA exempt under Federal exemptions (522(b)(3)(C).
In bankruptcy, pretty much all retirement plans recognized by the IRS are protected from being used by the Trustee to pay a Debtor’s creditors. So if you had $200k in your 401k, the Bankruptcy Court couldn’t force you to use those funds to pay creditors. Congress felt that retirement savings were more important that paying creditors.
In the In re Clark case, Ruth Heffron, who was the original IRA owner, died and her IRA was inherited by her daughter. The daughter ended up filing bankruptcy and the Trustee wanted to use the money in the inherited IRA to pay creditors. The Supreme Court ended up siding with the trustee.
But not all is lost. While the inherited IRAs may not be exempt under Federal exemptions, it may still be exempt under your state exemptions. So if you are the recipient of an inherited IRA and you are looking at filing bankruptcy, you need to make sure your attorney is up to date because you could be risking a lot of money if they aren’t
Bankruptcyblog.org 