If you are considering filing for bankruptcy relief and you have recently inherited an individual retirement account (IRA), it is imperative that you seek advice from a seasoned bankruptcy attorney. The United States Supreme Court made a ruling in 2014 that a debtor seeking debt relief in bankruptcy must forfeit all funds from an inherited IRA to pay creditors and settle debts.
Most consumers would not want to proceed with a bankruptcy filing knowing they could not protect the funds they inherited in the IRA. Thus, working with a lawyer is essential to create a strategy for dealing with this specific asset in planning for a Chapter 7 or Chapter 13 filing.
It is important to understand that an IRA or 401(k) account that you personally own is protected by federal law if you file for bankruptcy. In fact, your IRA or 401(k) is protected by an exemption in excess of one million dollars (depending on whether you use the New Jersey or the federal exemptions).
Now that the Supreme Court has determined that inherited IRAs are not entitled to the same protection as the owner’s personal IRA or 401(k), it can play a significant role in deciding whether or not to file for bankruptcy relief. The same holds true for inherited 401(k)s, since they are not protected either (except an account inherited by a surviving spouse).
As more parents from the World War II generation prepare to transfer their assets, inherited IRAs and 401(k)s will likely become more of an issue when it comes to debt relief planning.
If you have inherited an IRA or 401(k) and you are considering filing a bankruptcy case, let us help you explore all of your options. We are bankruptcy lawyers who know how to make a difference in your financial situation. We have experience you can rely on and we care about your results. Contact our New Jersey law firm online by filling out the form or by calling 973-323-2953 to schedule a free initial consultation with an attorney at Levitt & Slafkes, P.C..