The Supreme Court of the United States is the court of last resort in this country. It’s where dueling decisions from lower courts go to be addressed. Typically when the justices agree to hear a case, the decision provides some clarity. Sometimes, though, it raises as many questions as it answers. That apparent paradox is one of the reasons why it’s so important to work with an experienced lawyer on whatever issues you might be facing.
Bankruptcy is not immune from possible conflicts of interpretation. As an example, there is the case the Supreme Court heard late last month regarding whether inherited IRA money should be exempt from attachment in a Chapter 7 bankruptcy and distributed to repay creditors.
The case is not out of Texas, but the implications of whatever decision the justices reach will be felt across the nation, so it should peak everyone’s interest. It could be particularly important as aging baby boomers begin to consider details of their estate planning.
At issue is about $300,000 in IRA money that a Wisconsin woman inherited from her mom in 2001. The woman and her husband filed for Chapter 7 bankruptcy in 2010 after they closed the doors of their failed restaurant. The court-appointed trustee in the case has been seeking to tag the IRA money as an asset for use to pay creditors. But the couple has argued up through the various court levels that the money should be considered “retirement funds.”
Bankruptcy rules exempt up to $1.3 million in retirement funds from being used to pay for debts, but federal judges in different jurisdictions have come back with different opinions on whether inherited IRA accounts should be granted protection.
The Wisconsin couple says the inherited money is critical income as they try to recover after their business closure. A ruling in their case is expected by the end of June.
Source: The Wall Street Journal, “U.S. Supreme Court Hears Bankruptcy Fight Over Inherited IRA Money,” Katy Stech, March 25, 2014