In a case with implications for those filing bankruptcy in Arizona and across the nation, the Bankruptcy Appellate Court for the Eight Circuit agreed that individual retirement annuities were exempt from bankruptcy cases. In 2005, a new law was enacted to make it easier for creditors to recover the monies they were owed. However, some IRA and other retirement accounts were totally protected, even if they were extremely large holdings. Roth IRAs are protected up to $1 million; the amount is even higher when adjusted for inflation.

Because IRA accounts are protected during bankruptcy, a trustee sometimes tries to look for loopholes to disqualify these accounts so that creditors will have access to the monies. That was the situation in the case before the appellate court.

The individual involved in the case bought an IRA, which he paid for with a rollover from a separate account. He was scheduled to receive eight yearly payments of just over $40,000 from the account beginning in 2010. He also had the option of taking the monies out via a lump sum payment. However, he filed for bankruptcy in 2012. He declared that his IRA was exempt from bankruptcy holdings, but his bankruptcy trustee countered that the annuity wasn’t protected. A Minnesota bankruptcy court initially determined that the IRA was, in fact, exempt. The trustee filed an appeal.

The appeal argued that the annuity didn’t qualify under the tax code because he bought it with a single, lump-sum payment. However, the Appellate Court believed that he didn’t violate the law because he could have purchased the annuity in other ways and upheld the lower court’s decision.

A common question that people sometimes have when filing Chapter 7 bankruptcy could pertain to the status of their retirements accounts. If you are located in Arizona,  Phoenix bankruptcy attorney might be able to review what assets are and aren’t protected.


Source: Life Health Pro, “Bankruptcy court rules IRA annuity shielded from creditors”, Jeffrey Levine, November 20, 2013