The Make-Up of Assets in New Jersey Bankruptcy
It is crucial to determine the make-up of any monies that you currently possess or have a right to possess, when filing a bankruptcy case. For instance, there is a difference between monies you expect to receive as a result of a personal injury claim versus monies in your account because your personal injury case has already settled and you have received your share.
Are Inherited IRA's Exempt in Bankruptcy?
It appears a similar issue is currently before the United States Supreme Court when dealing with an IRA and an inheritance, with the Court expected to make a decision June 2014. The issue at hand is how much (if any) of an inherited IRA is exempt in a bankruptcy proceeding. An IRA is protected by the bankruptcy code up to $1.3 million. An inheritance, on the other hand, does not have a specific exemption (although $12,725 of any asset exceeding or not covered by a prior exemption can become exempt - 11 U.S.C. §522(d)(5)).
Wisconsin debtors, who filed for bankruptcy protection after their pizza shop went out of business, inherited an IRA after one of the debtor's parents died. The Trustee is claiming this inherited retirement should go to pay creditors as the money doesn't behave like retirement money anymore. In fact, a non-spouse beneficiary of an IRA cannot continue to contribute to the IRA account and must begin spending the inherited money.
My bet would be on the high Court ruling in favor of the Trustee as the IRA has now changed its make-up and is simply a liquid asset of the debtors.
If you are considering filing bankruptcy, contact one of our bankruptcy attorneys in New Jersey today.