Individual Retirement Arrangements or IRA's are set up by people to provide for their retirement. You can name a beneficiary or beneficiaries for them, in case you pass away before you use the money. If someone passes away and has named someone else as a beneficiary on their IRA, it is called an "inherited IRA." Regular IRA's can be claimed as exempt by people in bankruptcy under both Texas state and federal law.
But the Supreme Court of the United States ("SCOTUS") ruled on June 12, 2014 that funds held in inherited IRA's are not "retirement funds" within the meaning of the Bankruptcy Code, 11 U.S.C. Sec. 522(b)(3)(C), and therefore can no longer be claimed as exempt under federal law. Clark v Rameker, US Sup. Ct. 2014.
This means that if you file chapter 7 bankruptcy and claim the "federal" exemptions, you cannot keep an IRA that you have inherited from someone else. It has to be turned over to a bankruptcy trustee to be liquidated and used to repay your creditors. That is now the "law of the land."
But if you live here in Texas, you can claim Texas exemptions in a bankruptcy case, and your inherited IRA's are likely still safe from creditors. Texas law, specifically Sec. 42.0021 of the Texas Property Code, provides that inherited IRA's can be claimed as exempt by Texans, in or out of bankruptcy.
Do you think this is right? Should people be able to protect "windfalls" like inherited IRA's in bankruptcy, or should they have to use them to pay creditors? All lucid comments or opinions are appreciated!