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The Supreme Court heard oral arguments in a case in which a Wisconsin woman and a bankruptcy trustee are battling over the rights to the $293,000 IRA that the woman inherited from her mother, according to The Wall Street Journal. Heidi Heffron-Clark, 35, and her husband feel that the IRA that Heffron-Clark’s mother passed down to her in 2001 is off-limits to the trustee who was appointed by the Office of the United States Trustee after Heffron-Clark and her husband filed for protection under Chapter 7 of the bankruptcy law in 2009.
This case gives the Supreme Court the chance to clarify language on the matter, which has been described as unclear, according to the news source. Bankruptcy law allows a person to keep up to $1.3 million in retirement funds saved in an IRA, but there is little indication as to whether Congress intended for this rule to apply to IRA money that was inherited, rather than accumulated by the debtor herself.
Justice Steven Breyer explained in court that the case was a difficult one, because common sense hadn’t brought him any closer to finding a solution, according to Bloomberg. He noted that the exemption for IRAs is the only one not limited by the words of the statute to property of the bankrupt, suggesting that Congress may have intended the exemption to apply to IRAs regardless of who established the account. Justice Elena Kagan, on the other hand, suggested that it would be strange for the exemption to apply to an inherited IRA, because the bankrupt party cannot make contributions to the account.
The Wall Street Journal noted that this issue is important to resolve now, before the generation of aging baby boomers begins leaving more IRAs to its children. A decision from the Supreme Court is expected before the end of June.
- Practices: Bankruptcy & Creditors' Rights, Corporate Transactions & Business, Bankruptcy Litigation, Tax and Trusts & Estates
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
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