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One of the main things people worry about when they file for bankruptcy is what property is exempt from the bankruptcy proceedings. While most retirement assets are protected from creditor claims during the bankruptcy proceedings, a new ruling by the Supreme Court is changing that up a little bit. Florida residents who are considering bankruptcy might like to know about this ruling.

The case had to do with a couple who filed for bankruptcy, but didn’t want an individual retirement account that was inherited by the wife to be claimed by creditors. It was a $300,000 IRA from her mother. The wife argued that because it was set up as a retirement account that is was still technically a retirement account, despite being inherited.

The bankruptcy judge presiding over her case wasn’t convinced that the wife was right. A federal district court then found that the wife was correct. The issue then went to the Supreme Court to get a final ruling.

The Supreme Court ruled against the wife. Supreme Court Justice Sonia Sotomayor said that because an inherited IRA doesn’t require someone to wait until retirement to withdraw money in the retirement savings account, it can be used to pay off creditors. She noted that nothing would prevent someone who has filed for bankruptcy from using the inherited IRA from being able to buy “a vacation home or a sports car.”

This unanimous ruling sets a precedent for bankruptcy judges to look at inherited IRAs as an asset that can be used to satisfy creditors when a person files for bankruptcy protection. It is another example of just how complex bankruptcy law can be, as well as why it is important to know the current laws before filing for bankruptcy protection.

Source: Bradenton Herald, “Court: Inherited IRAs not protected in bankruptcy” No author given, Jun. 12, 2014