Supreme Court to Decide How Inherited IRAs Are Treated in Bankruptcy:
The Supreme Court has agreed to hear a case that will decide whether inherited individual retirement accounts (IRAs) are available to creditors in bankruptcy. The decision in Clark v. Rameker will resolve a split between the lower courts.
Heidi Heffron-Clark inherited a $300,000 IRA from her mother. Inherited IRAs must be distributed within five years. During the five-year period, Mrs. Clark and her husband filed for bankruptcy. The Clarks argued the IRA was exempt from creditors because bankruptcy law protects retirement funds. A district court agreed with the Clarks, but the 7th Circuit U.S. Court of Appeals reversed in Clark v. Rameker (714 F.3d 559 (2013)), holding that the money in the IRA no longer constituted retirement funds.
Meanwhile, the 5th Circuit U.S. Court of Appeals decided in In re Chilton (674 F.3d 486 (2012)), that funds from an inherited IRA should be exempt. The U.S. Supreme Court will resolve this issue later this term.
For more information about this case, click here.