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Supreme Court To Decide Important Bankruptcy Case Concerning Inherited Retirement Accounts

Charlotte Bankruptcy attorney Bryan W. Stone answers the question: “Are my 401k and IRA protected in bankruptcy?”

 

The Wall Street Journal recently reported on a woman from Wisconsin who filed for bankruptcy back in 2010 and has spent the years since battling with a court-appointed bankruptcy trustee over control of a nearly $300,000 retirement account that the woman inherited from her mother.

 

Supreme Court 1 Charlotte Bankruptcy Attorney North Carolina debt LawyerThe case finally made its way to the U.S. Supreme Court this past week after the woman’s lawyers argued that the inherited retirement account money should be off limits to the bankruptcy trustee who is attempting to collect as much money as possible to pay towards the woman’s creditors.

 

Current federal bankruptcy code says that individuals are allowed to shield up to $1.3 million in IRA retirement funds from creditors after filing for bankruptcy. The intention of this rule is to encourage people to save for their future and not force individuals considering bankruptcy to worry about being left penniless in their old age.

 

The issue before the Supreme Court is whether money that someone else has saved in an IRA and that debtors inherited should receive the same kind of protection that their own retirement accounts would warrant. So far, federal judges across the country remain divided on how to handle the issue, which is why it is important for the Supreme Court to clarify the matter.

 

The bankruptcy trustee who is fighting for control over the money has argued that once an IRA is passed down to an heir, the money no longer functions in the way that retirement money normally does. For instance, the heirs are allowed to spend inherited retirement account money however they want, without worrying about penalties or taxes.

 

Experts say that the issue is an important one given the millions of aging Baby Boomers who are going into their retirement years and may intend to leave retirement accounts behind for their children. Currently, more than 45 million such retirement accounts exist in the United States and the collective value of the funds is believed to approach $6 trillion.

 

Though the decision is seen as an important one, experts say that we will likely have to wait months before the Court issues its ruling. The justices will need to grapple with how much money they feel bankruptcy filers should be allowed to keep in the case of inherited money and whether that money will be used to help them start over or instead to deny creditors badly needed money.

 

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC today at (704) 370-2828 or find more resources here. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.

 

About The Author: 

Bryan 1  Bryan Stone is a Partner with Arnold & Smith, PLLC where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord tenant issues.  Originally from Macon Georgia, Mr. Stone attended the University of Georgia for a BBA in Banking and Finance and went on to Wake Forest to earn his law degree.  After law school Mr. Stone relocated to Charlotte where he has become quite involved in many local organizations.  He is currently the Chair of “Bravo!” the young professionals organization of Opera Carolina, he also founded the UGA Alumni Association of Charlotte.  In his spare time he enjoys perfecting his BBQ skills for the annual “Q-City BBQ Championships” and playing softball with the Mecklenburg County Bar Softball League.

 
Source:

“U.S. Supreme Court Hears Bankruptcy Fight Over Inherited IRA Money,” by Katy Stech, published at WSJ.com.

 

 

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