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Supreme Court Rules Inherited IRAs Not Protected by Bankruptcy Law

Posted on Thursday, July 17th, 2014    

A recent unanimous decision by the Supreme Court in the Clark v Rameker case has ruled that inherited Individual Retirement Accounts (IRAs) are not safe from creditors during bankruptcy proceedings.

The case which resulted in this ruling involved Heidi Heffron-Clark and Brandon Clark, a Wisconsin couple who declared bankruptcy. To prevent creditors from taking money from a $300,000 IRA Clark had inherited when her mother died, the couple went to court. Their argument was that it was technically a retirement fund, and had been initially set up that way. The bankruptcy court judge disagreed and ruled against them. However, a court of appeals reversed the ruling. The case eventually went before the Supreme Court, who cleared up the issue by ruling that inherited IRAs are subject to creditors during bankruptcy proceedings.

Retirement Accounts and Bankruptcy

Typically, bankruptcy law protects retirement accounts from creditors. However, inherited IRAs–those left to children by their parents for example–are not like typical IRAs. An inherited IRA allows the holder to withdraw from the funds without waiting until retirement, as a typical IRA requires. Because of this difference, the Supreme Court has ruled that inherited IRAs are subject to creditors during bankruptcy proceedings. This difference, as Justice Sonia Sotomayor noted, makes the inherited IRA much less like a retirement savings account and much more like a regular savings account. If creditors were not allowed to use inherited IRAs to pay off debt, nothing would prevent the debtor from spending the sum “on a vacation home or a sports car immediately after her bankruptcy proceedings are complete.”

Bankruptcy is a stressful and often confusing situation. As the above story shows, even the courts can disagree about how bankruptcy law can be interpreted, resulting in a new Supreme Court decision. If you have found yourself considering bankruptcy to relieve your debt and stop harassing creditors, seek the advice of Sacramento’s bankruptcy lawyers at Amerio Law Firm. With years of experience in bankruptcy law, the lawyers at Amerio Law Firm will not only explain the various types of bankruptcy options available to you, but also reveal bankruptcy alternatives to consider before filing. Understanding your unique case and individual goals and needs, Amerio Law Firm can help you develop a debt relief plan. Utilizing Amerio Law Firm’s knowledge and experience, you can make the best decision about pursuing relief from your crushing debt.

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