Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

Supreme Court to Decide Fate of Inherited IRAs in Bankruptcy

The topic of how to deal with an inherited underwater house came up recently, as did the unanswered question of whether a rent-stabilized apartment in New York City is an asset that can be included in the bankruptcy estate and liquidated by the trustee to repay chapter 7 creditors. Both issues are partly combined in a case that the U.S. Supreme Court has agreed to adjudicate in 2014. The question is whether an inherited individual retirement account (IRA) is an asset in bankruptcy. The ruling could cost people considering New York bankruptcy quite a bit of money.

Here are the facts: Heidi Heffron-Clark and her husband Brandon Clark ran a pizza place in Soughton, Wisconsin, until they hit hard times and filed bankruptcy in 2010. They owed their creditors roughly $700,000. After her mother died, Heffron-Clark inherited a $300,000 IRA. The bankruptcy code exempts IRAs, but because the IRA was inherited rather than personal to Heffron-Clark, the trustee, William Rameker, believed otherwise and initiated an adversary proceeding to include the IRA in the bankruptcy estate to repay the couple’s creditors. The bankruptcy court sided with the debtors, and then the federal district court reversed it, a decision that was upheld by the 7th Circuit U.S. Court of Appeals.

Other federal courts that have faced the matter disagree. In 2010, the 8th Circuit held that the bankruptcy code isn’t specific about whether the IRA must belong to the debtor, and in 2012 the 5th Circuit held that because retirement assets are set apart from other assets, they are exempt. The Supreme Court’s decision will resolve the split opinions among the circuit courts, and it will affect the futures of children who inherit their parents’ retirement accounts, a phenomenon that’s expected to occur more often as baby boomers retire.

Reuters did not report on whether the 2nd Circuit, of which New York is a member, has ruled on the issue of the inherited IRA. However, irrespective of the Supreme Court’s decision, it’s more important than ever for New Yorkers considering filing bankruptcy to consider the possible ramifications of inheriting large amounts of money from their relatives. That’s one more reason to consult with an experienced bankruptcy lawyer.

For answers to more questions about retirement accounts in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced  bankruptcy attorney New York Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

Recent Posts

Beware Grace Periods, Debtors

Too often, debtors see grace periods offered by lenders as free benefits. “Grace” makes it sound so innocent. However, debtors who routinely rely on grace periods when making payments will find themselves facing financial difficulties that might lead to bankruptcy. The reason is that although creditors offer grace periods to debtors, they also use them

Read More »

Bankruptcy May Not Rescue You From Vicious Personal Disputes

Bankruptcy is a technical process that assumes everyone working within it is mostly rational. To the extent that it expects parties to deviate from irrational behavior, the Bankruptcy Code and its accompanying rules include incentives to keep parties in line. Creditors are usually large and impersonal, and they rarely care if their debtors file bankruptcy.

Read More »

Non-Lawyers’ Explanations of Bankruptcy May Be Wrong

Do you have financial problems? Do you tend to ask your friends for advice? Is one of your friends an experienced New York bankruptcy lawyer who will explain the process for you? Are your friends otherwise knowledgeable people? The answer to these questions may be, “Yes but you don’t know it.” Although many bankruptcy lawyers

Read More »

6 Steps to Take Before Filing Bankruptcy

Leaving your case to an experienced New York bankruptcy lawyer is not the only step on the to-do list before filing bankruptcy. There are many things debtors should do (and not do) before they file, and the more organized and mindful debtors are, the easier the process will be and the more effective the result.

Read More »

Social Security Number Not Necessary for Bankruptcy

A question that’s commonly asked about New York bankruptcy is whether a debtor needs a Social Security number to file. Debtors ask because they sometimes run across the bankruptcy form title, “Your Statement About Your Social Security Numbers” (B 121), which asks debtors to list their current and prior Social Security numbers. The new bankruptcy

Read More »

How Can a Debtor (or Creditor) Get a New Trustee?

The trustee in a New York bankruptcy case is usually not the debtor’s ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtor’s repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In

Read More »
Scroll to Top