Building financial security and providing for your children is a lifelong endeavor. Most spend a large amount of their time and energy and worry hoping to establish savings in hopes to leave their loved ones with a positive financial landscape when they pass. These efforts can be disrupted by certain legal actions, one of which is bankruptcy proceedings. Inherited funds like an individual retirement account (IRA) can be compromised as a result of bankruptcy.
Right now, estimates have the amount of money designated in retirement accounts at $5 trillion. Currently, these IRA and 401(k) retirement accounts are off-limits to creditors during the bankruptcy filing process, but Americans should be aware that the United States Supreme Court recently ruled that creditors should have access to inherited IRA funds as a part of the bankruptcy collections process.
Bankruptcy laws are designed to protect the long-term needs and financial health of filers and in so doing, their retirement accounts are protected from collection. The Supreme Court made note that inherited IRAs are not particularly intended as a reserve set aside for retirement. Individuals who inherit an IRA can start to make draws from the account within a short amount of time without penalty. As such, the Supreme Court decided that inherited IRAs should be subject to collections as an asset of the filer.
The ruling was made in response to a case in which a couple was hoping to protect an inherited IRA from creditors during their bankruptcy involving approximately $700,000 in various debts.
If you have questions or concerns regarding your own savings or inherited funds and how they would be affected by filing for bankruptcy, contact Westgate Law today.