As the baby boomer generation begins to enter retirement and old age, the percentage of IRAs handed down to children is expected to increase. The question posed by creditors and heirs alike is: If an individual inherits an IRA from a parent and later goes bankrupt, can creditors seize the inherited IRA to apply its funds towards the debt owed?
A person's own IRA is protected under bankruptcy law, because this is money that has been saved for retirement. An IRA inherited from someone other than a spouse, however, is typically not protected by bankruptcy law and can be seized by creditors. A recent ruling in Minnesota suggests that bankruptcy protections may be extended to IRAs inherited from parents. A federal judge ruled that a woman who filed for bankruptcy has the right to keep a $63,000 IRA that her father left to her.
This change in the law may allow individuals to file for bankruptcy without putting assets such as IRAs at risk, even if the IRA was not originally their own.
If you are considering filing for bankruptcy and have questions regarding bankruptcy law, contact the Austin personal bankruptcy attorneys of Slater Kennon LLP, today at 512-338-1100.