Bankruptcy Exemptions and Inherited IRAs

When a person files for bankruptcy he/she may exempt certain assets from the bankruptcy estate, including retirement funds (i.e. IRAs) under 11 USC 522(b)(3)(C).  However, in Clark v. Rameker, 134 S.Ct. 2242, the Supreme Court ruled that inherited IRAs do not qualify as retirement funds under that exemption.  The SC focused on three legal characteristics: 1) the holder of the inherited IRA may never invest additional money, 2) the holder of the inherited IRA may withdraw money, regardless of how many years away from retirement they are, and 3) the holder of the inherited IRA may withdraw all of the money, regardless of purpose, without penalty.  With all assets, its important to understand their treatment before filing for bankruptcy.