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Arizona Bankruptcy Attorneys Should Continue to Assert Exemption in Inherited Retirement Accounts

June 21, 2014 by  
Filed under Blog

Bankruptcy attorneys across the country recently took notice when the United States Supreme Court issued its decision in Clark v. Rameker, 134 S. Ct. 678 ( 2013). The Court ruled that funds held in inherited Individual Retirement Accounts are not “retirement funds” within the meaning of 11 U.S.C. §522(b)(3)(C) and therefore not exempt from the bankruptcy estate under that code section.

An Arizona bankruptcy attorney will know that in the state of Arizona there is a second grounds for claiming an exemption. Bankruptcy law, 11 U.S.C. §522(b)(3)(A), allows the debtor to use State law to exempt property. Arizona state law, A.R.S. 33-1126(B), provides as follows:

B. Any money or other assets payable to a participant in or beneficiary of, or any interest of any participant or beneficiary in, a retirement plan under section 401(a), 403(a), 403(b), 408, 408A or 409 or a deferred compensation plan under section 457 of the United States internal revenue code of 1986, as amended, whether the beneficiary’s interest arises by inheritance, designation, appointment or otherwise, is exempt from all claims of creditors of the beneficiary or participant. This subsection does not apply to any of the following:

1. An alternate payee under a qualified domestic relations order, as defined in section 414(p) of the United States internal revenue code of 1986, as amended. The interest of any and all alternate payees is exempt from any and all claims of any creditor of the alternate payee.

2. Amounts contributed within one hundred twenty days before a debtor files for bankruptcy.

3. The assets of bankruptcy proceedings filed before July 1, 1987.

It is not settled whether this section will ultimately be ruled to provide for an exemption, but a strong case can be made for the allowance of an exemption for the entire interest in an inherited retirement plan in an Arizona bankruptcy case .

Bankruptcy attorneys should also note that 11 U.S.C. §522(b)(3)(A) is only available if the client meets the domicile requirement found therein.

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