Jump To Navigation

IRAs Protected During Bankruptcy

Posted on April 28th, 2014

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

Contact Us for a Free Consultation
Office Locations

Phoenix Office One
Wright Law Offices
2999 N. 44th St., Ste 600
Phoenix AZ 85018

Telephone: 480-845-0145 / 866-703-3287
Phoenix Law Office

Phoenix Office Two
Wright Law Offices
668 N. 44th St., Ste 320
Phoenix AZ 85008

Telephone: 480-845-0145 / 866-703-3287
Phoenix Law Office

Scottsdale Office
Wright Law Offices
7135 East Camelback Road, Ste 230
Scottsdale AZ 85251

Telephone: 480-845-0145 / 866-703-3287
Scottsdale Law Office

Tempe Office
Wright Law Offices
2238 S. McClintock Dr.
Tempe AZ 85258

Telephone: 480-845-0145 / 866-703-3287
Tempe Law Office

Avondale Office
Wright Law Offices
12725 W Indian School Rd, Suite E-101
Avondale AZ 85392

Telephone: 623-258-4480 / 866-703-3287
Avondale Law Office

Prescott Office
Wright Law Offices
1129 Iron Springs Rd
Prescott AZ 86305

Telephone: 623-258-4480 / 866-703-3287
Prescott Law Office

Mesa Office
Wright Law Offices

4856 E. Baseline Rd.
Suite #104
Mesa, AZ 85206
Telephone: 480-845-0145 / 866-703-3287
Mesa Law Office

Glendale Office
Wright Law Offices
20325 N. 51st Ave., Suite 134
Glendale, AZ 85308
Telephone: 623-258-4480 / 866-703-3287
Glendale Law OFfice

Facebook IconTwitter IconVisit Us On Google+Visit Us On Google+