Bankruptcy attorneys in Washington know that certain assets are exempt from creditors' claims. One particular type of asset is being considered by the nation's highest court, however, as creditors attempt to gain access to certain types of retirement accounts during individual bankruptcy. The decision in the case could have wide-reaching effects for people who inherit retirement accounts from other family members.
News reports show that the court is working to determine whether an inherited individual retirement account may be exempted from creditors' claims when filing for bankruptcy. Federal courts appear to be divided on the issue; a judicial body in Chicago determined that the IRAs are considered fair game during bankruptcy, while a court in New Orleans came to the opposite conclusion. The Supreme Court justices say that the issue is difficult to define because common sense does not necessarily apply to this aspect of the law.
At issue is the fact that retirement accounts that are in a tax-exempt fund are considered as bankruptcy exemptions. However, in most cases those funds belong directly to the person who is filing for bankruptcy. The IRAs in this case belonged to another person who then bequeathed it to the plaintiff. This specific case involved a woman who received access to a $300,000 IRA after her mother passed. Creditors ostensibly attempted to seek compensation through that inheritance, though the issue has now made it to the nation's highest court for consideration.
Filing for bankruptcy is not always simple, with state exemptions and certain provisions for retirement savings accounts. That is why a Washington bankruptcy attorney may be able to provide advice and guidance for those who are considering filing for bankruptcy. A professional bankruptcy attorney may serve as a valuable ally and advocate, protecting filers from unfair creditor claims.
Source: Worchester Telegram and Gazette, "Supreme Court hears case on bankruptcy-exempt inherited IRAs" Bill Rochelle, Bloomberg News, Mar. 25, 2014