IRAs Allow as Much As $1 Million Protection From Creditors When In Bankruptcy In Most Situations

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 1 min read

You might be aware that IRAs have some creditor protection. In fact, a 2005 bankruptcy law allows an individual to protect an IRA worth as much as $1M from creditors. However, a recent court case seems to indicate that this bankruptcy protection does not apply to IRAs that are inherited from another person.

The precedent-establishing Texas case involves a daughter who inherited an IRA from her mother and later filed for bankruptcy. The daughter maintained that the inherited IRA should receive the same $1M in protection afforded to other IRAs. However, the Texas court ruled that only the debtor’s own funds qualify for the protection. The case likely hinged on the fact that inherited IRAs remain titled in the name of the original account holder. (When you inherit an IRA from anyone other than a spouse, you actually keep the name of the original account holder and add “for benefit of the beneficiary”)

Finally, you should know that the $1M exemption put in place with the 2005 law has now increased to $1,171,650 due to the impact of inflation.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.