Appeals courts differ on inherited assets in bankruptcy
When Georgia residents are considering filing for bankrutpcy under either Chapter 7 or Chapter 13, it is crucial to consider the impact the filing will have on all of one’s assets. A big part of the bankruptcy process is reorganizing assets and figuring out the best way to pay off creditors or discharge debts. When this is happening it can seem like payment-hungry creditors will take anything they can find to satsify a debt.
However, filing for bankruptcy doesn’t have to mean giving up everything with monetary value, and in fact there are some assets that courts consider exempt from bankruptcy, including some inherited assets. For example, depending on how a trust is structured, the principle amount in the trust may be out of reach of creditors.
In a recent decision, the Seventh Circuit Court of Appeals split from other jurisdictions and ruled that the IRA account that someone had inherited from their mother could be accessed by creditors. This ruling does not impact Georgia directly because of the jurisdiction, but bankruptcy law is created and administered on the federal level, making uniformity across the country very important.
The discrepency between this decision and previous rulings by federal bankruptcy courts has caused some experts to suggest that this matter should be reviewed by the United States Supreme Court so that people who choose to declare bankruptcy will know what to expect in terms of inherited assets. The outcome could signficant impact the cost-benefit anaylsis that goes into choosing to file for bankruptcy.
Source: Thomson Reuters News & Insight, “In circuit split, court says inherited IRA fair game in bankruptcy,” Nick Brown, April 24, 2013.