Supreme Court Protects IRA's
Posted on April 4, 2005
In a piece of good news this morning, the Supreme Court has ruled that IRA's are protected from creditors in bankruptcy proceedings. The unanimous decision sides with a bankrupt Arkansas couple fighting to keep more than $55,000 in retirement savings. As a result, IRAs now join pensions, 401(k)s, Social Security and other benefits tied to age, illness or disability that are afforded protection under bankruptcy law.
Oh, but wait: there's a spoiler.
Under bankruptcy law, the retirement savings won't be given blanket protection. A separate provision in the law shields the assets only to the extent the money is "reasonably necessary for the support of the debtor and any dependent."
And who decides whether the money is "reasonably necessary"? Well, it used to be the bankruptcy judge, but under the new bankruptcy law, look for creditors to argue that IRA money isn't necessary for the 1.6 million people who filed for personal bankruptcy last year. And who are these profligate spenders filing bankruptcy anyway? "Experts say much of that is being driven by people 55 and older who lose their jobs and cannot pay off debts."