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IRAs Off Limits to Bankruptcy Creditors

Court rules IRAs fall under same protection as pension plans.

In general, persons seeking bankruptcy protection must make available to their creditors all of their assets. However, the bankruptcy code allows debtors to retain certain "exempt property." Are IRA accounts exempt from bankruptcy creditors? Yes, said the Supreme Court in a recent ruling. A couple filed for bankruptcy, and the bankruptcy trustee attempted to seize the couple's IRA accounts for distribution to their creditors. The bankruptcy code exempts "pension, annuity, or similar plans" making payment on account of "illness, disability, death, age, or length of service" from the reach of bankruptcy creditors. The Court concluded that IRA accounts were covered under this exemption and therefore do not have to be turned over to a bankruptcy court for distribution to a person's creditors. Rousey v. Jacoway, 2005-1 USTC ¶50,258 (2005).

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Posted:
  • August 1, 2005