The Supreme Court has agreed to hear the case of a Wisconsin woman who filed bankruptcy in 2010.
Heidi Heffron-Clark and her husband are battling a court-appointed trustee over ownership of $293,000 the 35-year-old woman inherited from an IRA account, owned by her mother.
The couple claim the money should be off limit to creditors, who are pursuing the couple for unpaid debts resulting from the failure of a pizza shop the couple owned until 2009. After the restaurant, located in Stoughton, closed, the couple took other jobs. He worked as a bricklayer, while she was a cashier at a Cracker Barrel Restaurant. A landlord won a judgment against the couple for $74,000.
Individuals may keep up to $1.3 million in retirement savings stashed away in a retirement account, safe from creditors. But, courts have, so far, been undecided about whether that protection extends to money inherited from IRA accounts belonging to relatives.
As baby-boomers begin to die in large numbers, savings collected in millions of IRA accounts will need to appropriated to heirs.
This case could give the high court a chance to clear up sections of the laws about individual retirement accounts that have never been clarified.
The way the law is currently written, people who inherit IRA money from people who are not their spouses cannot add more funds to the account. They must also spend much of the money almost immediately. This makes some people describe current retirement account laws as being “anti-retirement.”
“That doesn’t seem like a retirement fund in people’s natural understanding of the language,” Justice Elena Kagan said during arguments on March 24th.
Chapter 7 bankruptcy allows people to retain some items like an inexpensive car and a few hundred dollars worth of furniture to assist them in starting a new life after bankruptcy.