The Supreme Court ruled on June 12, 2014, that inherited individual retirement accounts (IRAs) are not protected from creditors during bankruptcy proceedings as they are not “retirement funds” within the meaning of 11 U.S.C. §522(b)(3)(c).[1] The petitioners in the case originally filed for bankruptcy under Chapter 7 of the Bankruptcy Code (the “Code”) and attempted to exclude about $300,000 of an inherited IRA from the bankruptcy estate. They claimed that they fit within the “retirement funds” exemption of the Code. The Bankruptcy Court disallowed the exemption but the District Court reversed, stating that the retirement funds exemption covers any account in which funds were saved for retirement. The Seventh Circuit reversed the District Court and the Supreme Court affirmed.
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