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What is in a Name? The Importance of Relying on a Reputable Illinois Bankruptcy Attorney

Posted on in Bankruptcy

The names Clark and Rameker may not ring a bell but if you are gathering financial and asset documentation in preparation of petitioning for protection under Chapter 7 bankruptcy, it may be in your best interest to contact an experienced Illinois bankruptcy attorney to learn how these names just may set the precedent for your day in court.

During the Supreme Court's October 2013 term (7th Circuit), the deliberation of Clark v. Rameker (trustee) set forth the precedent for those seeking bankruptcy protection when it comes to Inherited IRAs. Following deliberation, the Court held that funds originating as an Inherited IRA were not deemed retirement funds (§522(b)(3)(C). P) and were not protected under the retirement fund exemption for those seeking debt relief.

If you are currently considering filing for Chapter 7 bankruptcy, the following summarization may prove valuable to understanding how this ruling may evoke an important conversation between you and your attorney.

The Argument

When a family member establishes a Traditional IRA and intestate bequeaths a Traditional IRA to a sole benefactor, does the fund automatically remain a protected retirement account still protected under bankruptcy code 11 U.S.C. §522(b)(3)(C)?

The Objection

The trustee and creditors, rejected this claim as monthly taxable distributions were elected and therefore did not qualify as funds set aside specifically for retirement purposes nor did they establish a specific retirement age for distribution.

The Deliberation

When an individual petitions the court for bankruptcy protection, all legal or equitable interests are deemed in property or a portion of the bankruptcy estate under consideration. For those seeking a financial fresh start, retirement funds are often exempt and free of taxation.

As per the Internal Revenue Code, §§522(b)(3)(C),(d)(12) there are three primary fund accounts to be taken into consideration:

  • Traditional IRA
  • Roth IRA
  • Inherited IRA

The Traditional option offers tax advantages to encourage the holder to prepare for retirement as all qualified contributions are tax deductible.

The Roth IRA presents opposite benefits. Contributions are not tax exempt but qualified distributions are deemed non-taxable.

At the time of distribution all proceeds are subject to a 10 percent taxable penalty if monies are taken out before set age limits.

The Inherited IRA differs. Although once a Traditional or Roth IRA, the monies are held accountable as to IRS regulations. Once this fund has been bequeathed, the benefactor is unable to rollover the funds with the only alternative being to hold the IRA as an inherited account. Since this IRA does not function as a Traditional or Roth IRA, the owner may request distributions at any time, therefore eliminating the desire to hold the funds until specified retirement age. It is further stipulated that the holder must withdraw the balance of funds within five years of the originator's death or elect to take monthly distributions.

The Determination

After 80 days, Justice Sotomayor delivered the determination of an unanimous Court.

If the primary counterargument is that an Inherited IRA was once designated as a true retirement fund account that regulated status no longer applies upon the death of the originator. Once it becomes an Inherited IRA, based on origination and distribution stipulations, it now forfeits it's legal status as protected retirement funds as per the IRS Revenue Code.

Filing for bankruptcy is not an easy decision. Nor is it any less complicated than the financial situation you are currently experiencing. You need to be prepared and knowledgeable of what is and is not accepted by the courts as you request the opportunity to redefine your financial future.

If you are currently considering Chapter 7 bankruptcy, the names of legal partners Steve and Gary Newland are ones to consider. With 40 years combined legal experience, the legal team of Newland & Newland, LLP have been serving residents of Cook, Lake, McHenry, DuPage and Will Counties with all of their bankruptcy needs. Since 1993, our attorneys have been making a name for themselves in the Chicago area. Our legal team can answer all of your legal questions by providing simple and accurate answers that achieve results. Contact us today to schedule your initial consultation and let us help you get your name back into good standing.

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