Recently, a decision was handed down in a Minnesota court case that could have legal ramifications for Florida and other U.S. residents concerning bankruptcy and personal assets. The Eighth Circuit Bankruptcy Appellate Court upheld a lower court’s decision stating that an IRA funded with a single premium was indeed still an exempt asset in a pledger’s bankruptcy.
The original law, 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, was designed to make it easier for creditors to recover funds owed to them. However, the law also made individual retirement annuities and some other types of retirement accounts exempt when compiling assets.
Under the federal law, SIMPLE IRA’s are completely shielded and cannot be touched by creditors during bankruptcy. All company rollovers that contributed to the IRA are protected as well. In 2012, a Chapter 7 bankruptcy case filed in Minnesota supplied the courts with a new wrinkle in the form of a challenge to the federal law. The filer listed his IRA balance as an asset in the amount of nearly $275,000. Documents stated that his annuity was funded via a rollover from another retirement account and was designed to pay out the fixed amount over eight equal payments.
The trustee assigned to the case contested this assertion, stating that the filer’s annuity violated Section 408(b) of the federal tax code, which states that to be considered an individual retirement annuity, the premiums cannot be fixed and the account has to have annual premiums that meet certain requirements. The lower court disagreed with the trustee and decided that the annuity had one purchase premium and not annual premiums, the annuity could have been purchased for any value, and therefore had no fixed price, essentially nullifying the trustee’s case.
A bankruptcy lawyer may help someone better understand the legal terms and conditions. They can discuss their goals, especially if someone is wanting to protect certain assets, such as their retirement and home.
Source: Life Health Pro, “Bankruptcy court rules IRA annuity shielded from creditors“, Jeffrey Levine, November 20, 2013