Many Michigan residents have taken much pain to save some of their paychecks regularly, and put this savings into an Individual Retirement Account (IRA) or other type of savings plan. Although many of these Michiganders probably use the funds in this account when they are finally able to retire, others may wind up passing on their IRA to their loved ones via a beneficiary designation or other type of inheritance.
In a case that promises to affect bankruptcy proceedings nationwide, however, the United States Supreme Court ruled unanimously held that, unlike IRAs that a person builds up themselves, an IRA received via an inheritance is not protected from seizure and sale during a person's bankruptcy.
While this decision may spell trouble for those who have inherited an IRA, people who have established an IRA through their own contributions need not worry. The Court's recent ruling will not require struggling debtors to turn over this kind of IRA during a personal bankruptcy.
The Court's decision answers a longstanding question in the world of bankruptcy. The upshot of the decision means that debtors who may have received a generous inheritance from a friend or relative, in the form of an IRA, will want to think carefully before filing for a bankruptcy.
After all, the goal of a bankruptcy is to be able to get a fresh financial start, while maintaining a reasonable standard of living. Bankruptcy does little good if a person loses all that he or she owns in the process. While Michigan debtors need to realize that sometimes bankruptcy does involve some give and take, there are legal ways in which they can ensure that they will be able to keep as much of their property as possible despite a bankruptcy. An experienced Michigan bankruptcy attorney can offer advice and guidance.
Source: Forbes, "Supreme Court finds inherited IRAs not protected in bankruptcy," Deborah L. Jacobs, June 12, 2014.