Supreme Court rules on retirement funds in bankruptcy case

[JURIST] The US Supreme Court [official website] ruled [opinion, PDF] unanimously Thursday in Clark v. Rameker [SCOTUSblog backgrounder] that funds held in inherited individual retirement accounts (IRAs) are not "retirement funds" for bankruptcy purposes. Section 522 of the Bankruptcy Code [text] exempts tax-exempt retirement funds from the bankruptcy estate. In October 2010 the Clarks filed voluntary joint bankruptcy and claimed an inherited IRA under the Section 522 exemption, to which the bankruptcy trustee and creditors objected. The district court ruled that inherited IRAs are exempt because they retain their character as retirement funds, but the US Court of Appeals for the Seventh Circuit reversed [opinion] that ruling. In an opinion by Justice Sonia Sotomayor, the Supreme Court agreed with the Seventh Circuit: "the possibility that some investors may use their inherited IRAs for retirement purposes does not mean that inherited IRAs bear the defining legal characteristics of retirement funds. Were it any other way, money in an ordinary checking account (or, for that matter, an envelope of $20 bills) would also amount to "retirement funds" because it is possible for an owner to use those funds for retirement."

The court heard arguments in the case in March after granting certiorari [JURIST reports] in November. The court has ruled in several other bankruptcy cases this term. Earlier this week the court held [JURIST report] that when a bankruptcy court lacks jurisdiction to enter a final judgment, the bankruptcy court can still issue proposed findings of fact and conclusions of law to be reviewed de novo by the district court. In March the court ruled [JURIST report] that a bankruptcy court improperly exceeded its authority by ordering legally exempt funds to be used to pay attorney's costs.

 

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