Many of my clients have retirement funds such as IRAs and these funds are given protection by the legislature and the federal bankrutpcy exemptions such that the retirement funds are generally totally protected.  In other words, debtors do not have to use any of their retirement money to pay back creditors.  The reason that the legislature generally protects retirement funds is so that money will be available to the person when they are at the age of retirement.  The more that older people can provide for themselves, the less of a buren is placed on the government. 

The United States Supreme Court in Clark et. U. et.ux. vs. Ramaker et. al, the United States Supreme Court made the distinction between regular IRAs and inherited IRAs such as in the Clark case.  In the Clark case, Heidi Clark inherited a $450,000 IRA from her mother in 2001 and then after withdrawing $150,000 of it, she filed bankrutpcy in 2010 with $300,000 of the inherited IRA remaining.  The Court reasoned that inherited IRAs are fundamentally different than an individual's own retirement plan because of their purpose.  The Justices reasoned that an individual's retirement exists to "ensure that a person's basic needs are met into their retirement years."  The money from an individulal retirement cannot be taken out before age 59 without a steep penalty.  In striking contrast, an inherited IRA exists as "an opportunity for current consumption and not as a fund for retirement savings."  Not only is there no penalty for withdrawing funds from an inherited IRA but a person must withdraw a certain amount of money from the inherited IRA each year. 

Individuals looking to get help with their finances should tell their bankrutpcy attorney about any recent inheritances so that the attorney can engage in pre-bankruptcy asset planning.  Attorney Rebeka Seelinger will help ensure that you get the fresh financial start that you need while keeping all of your assets. 

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