Certain IRA accounts may be considered exempt in FL bankruptcy cases

During hard economic times, some Florida residents are compelled to declare bankruptcy as a way to gain financial freedom from uncontrollable debt. As part of the bankruptcy process, people are required to list their assets and property as well as their debt. The trustee assigned to the case has the ability to reclaim certain property items from the debtor and distribute the funds to the creditors. However, not all property is eligible for seizure.

Although the federal government has a set of bankruptcy exemptions, each state is able to set their own standards as to what can be repossessed, as well as what items are exempt. In the majority of states across the country, nonspousal inherited IRA accounts can be used to repay creditors following a bankruptcy. Yet in seven states, including Florida, IRA funds that have been inherited from a person other than a spouse are protected from reclamation.

Financial experts claim that the exemption of nonspousal inherited IRA funds is dependent on whether the case is handled in a state court or a federal court. In a recent case, the U.S. Supreme Court ruled that these IRA funds are not exempt and can be used to repay owed debt to creditors in a bankruptcy case.

People who are currently going through a bankruptcy or are considering filing for bankruptcy may want to contact a lawyer who understands bankruptcy law. Selecting a lawyer that has an uncompromised knowledge of federal and state bankruptcy exemptions may be able to help you keep your IRA funds during the settlement process.

Source: Insurance News Net, “Nonspousal Inherited IRA Assets Protected in 7 States,” Cyril Tuohy, July 29, 2014.