IRAs Protected Against Bankruptcy
In a ruling that is good for those who have retirement savings in Individual Retirement Accounts (IRAs), the Supreme Court ruled that IRAs are off limits to creditors when people file for bankruptcy. This means that IRAs are protected from creditors during bankruptcy the same as social security benefits, company pensions and 401(k) plans.
The Supreme Court reversed a lower court ruling in a unanimous decision against an Arkansas couple who declared bankruptcy. In the lower court ruling, the couple had been told they could not keep the money from creditors that was in their IRAs.
The couple had saved $55,000 in a company pension program. When each of them left the company, they rolled the money over into two IRAs. The couple declared bankruptcy at a later date and when they did, filed to shield their IRAs from creditors.
The ruling will likely affect hundreds of thousands of people each year who are filing for bankruptcy. Currently more than 45 million people have IRA accounts with more than 1.5 million people declaring bankruptcy in 2003.
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