By Ullian Associates of The Law Firm of Ullian & Associates, P.C. on May 19, 2015
When you file for bankruptcy, all of your assets become part of the bankruptcy estate and are available for distribution to your creditors unless you can exempt the asset using either the Federal or State exemptions. During your initial consultation with your bankruptcy attorney, it is important to discuss all of your assets, so the attorney can determine which assets can be exempted.
The U.S. Supreme Court released an importate decision in 2014 which affects the right to exempt certain IRAs. The case, Clark v. Rameker, outlined the differences between a typical IRA and an inherited IRA. The three key features of an inherited IRA, according to the Supreme Court, are:
1. The holder did not invest money into the account
2. The holder is required to withdraw funds, even if not retired; and
3. The holder can withdraw the entire balance without a penalty.
This distinction matters because although IRA's can be exempted under the federal exemptions, an inherited IRA cannot be exempted. When you have an unexempt asset, this asset will not be protected in your bankruptcy. Therefore, this distinction can have a substantial impact on your decision to file a bankruptcy.
For more information on bankruptcy or to schedule your free consultation with The Law Firm of Ullian & Associates, P.C., contact us here.