Supreme Court Rules Inherited IRAs not Exempt in Bankruptcy
[Archived post. First published 06/25/2014]
The Supreme Court ruled this month that inherited IRAs are not exempt in bankruptcy under the federal code, meaning they can be taken to satisfy the claims of creditors. The decision interpreted a provision added to the Bankruptcy Code in 2005 allowing debtors to exempt retirement funds regardless of whether they were using state or federal exemptions. The provision is notable for being one of the only changes to the Bankruptcy Code in 2005 that was favorable to debtors. However, for debtors in Kansas, it is also important to note that nothing in the decision prevents states from exempting inherited IRAs as part of a state's exemptions. Kansas already offers broader protection in bankruptcy for retirement accounts. Kansas allows for the exemption of "any money or other assets payable to a participant or beneficiary from a retirement plan . . ." or "any interest of any participant or beneficiary in a retirement plan. . ." Kansas notably makes a distinction between the participant and the beneficiary in retirement plans and allows both parties the exemption. The 2005 Bankruptcy Code amendment did not make that distinction, but only allowed an exemption for "retirement funds. . ." The Supreme Court's decision can be read here.