Free Case Evaluation

 
 
X Close
Phone Call Us 414-326-9231
608-260-7133
Toll Free 866-678-9352
Text Us 414-277-7742
You can also feel free to text us at 414-277-7742 to set up your FREE appointment with our attorneys today

Supreme Court: Inherited IRAs non-exempt in bankruptcy

This spring, we wrote about a Wisconsin-based bankruptcy case that made its way to the nation’s highest court. At issue in the case is whether money inherited from another person's individual retirement account (IRA) is shielded from creditors in bankruptcy proceedings.

Before we dive into the case, here is a little more background: During the Chapter 7 bankruptcy process, a trustee is appointed by the court to find any assets owned by the filer that could potentially be used to pay back creditors. However, there are many exemptions under the U.S. Bankruptcy Code, including retirement accounts. 

Essentially, filers are allowed to keep up to $1,245,475 of retirement savings in an IRA so that they are able to provide for themselves post-retirement.

In 2010, when a Wisconsin couple decided to file for Chapter 7 bankruptcy protection, they listed a retirement account that the wife had inherited from her mother as an “exempt asset,” which meant they wanted it protected from their creditors.

But the bankruptcy court did not accept the classification and said that the inherited IRA was non-exempt. The woman then appealed the decision, and federal district court reversed the holding. After another appeal, the 7th U.S. Circuit Court of Appeals ruled that the inherited IRA was non-exempt.

The U.S. Supreme Court then agreed to hear the case, likely because this could become a more common issue as the aging baby boomer generation begins to pass on, leaving unspent retirement assets to their children and loved ones.

In a decision that was announced last week, the Supreme Court held that inherited IRAs are not protected from creditors during bankruptcy like regular IRAs because the status of the funds changes. Inherited IRA funds can be withdrawn at any time, unlike original IRAs.

This crucial change in status makes the inherited IRA funds accessible to creditors, Justice Sonia Sotomayor wrote on behalf of the Court.

Source: Wisconsin Law Journal, “US high court: Inherited IRAs not protected in bankruptcy (UPDATE),” June 12, 2014; Market Watch, “Inherited IRAs lose bankruptcy protection,” Jeffrey Levine, June 13, 2014

No Comments

Leave a comment
Comment Information

Contact Our Milwaukee Law Firm

Reach Miller & Miller Law, LLC, online or call us at 414-326-9231 to schedule a free initial consultation. Our law office also provides Spanish language services. Se habla español.

To schedule an initial consultation, call 414-326-9231 or contact Miller & Miller today.

Free Case Evaluation

* indicates required field

 
 

Milwaukee Office
633 W Wisconsin Ave, Suite 500
Milwaukee, WI 53203

Phone: 414-312-6581
Fax: 414-277-1303
Milwaukee Law Office Map

Kenosha Office
6123 Green Bay Road
Suite 210
Kenosha, WI 53142

Phone: 262-326-1669
Kenosha Law Office Map

Brookfield Office
200 S. Executive Drive
Suite 101
Brookfield, WI 53005

Phone: 262-261-0665
Brookfield Law Office Map

Madison Office
2810 Crossroads Drive
Suite 4001
Madison, WI 53718

Phone: 608-260-7133
Madison Law Office Map