The U.S. Supreme Court Holds That Inherited IRAs Are Not Exempt In Bankruptcy

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On June 12, 2014, the United States Supreme Court unanimously held in Clark v. Rameker Trustee that funds in an individual retirement account (“IRA”) inherited from someone other than the bankrupt debtor’s spouse are not “retirement funds” within the meaning of the United States Bankruptcy Code and are, therefore, available to pay creditors of the debtor-heir.

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Under the Bankruptcy Code, certain retirement plans are designated as “excluded” from the bankruptcy estate, which means that individuals can keep them. These include “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under Section […] 408 of the Internal Revenue Code.” Internal Revenue Code section 408 relates to IRAs...

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