Academic journal article Missouri Law Review

Are They or Aren't They "Retirement Funds"? the Case for Including Funds from an Inherited IRA in a Debtor's Bankruptcy Estate: Clark V. Rameker

Academic journal article Missouri Law Review

Are They or Aren't They "Retirement Funds"? the Case for Including Funds from an Inherited IRA in a Debtor's Bankruptcy Estate: Clark V. Rameker

Article excerpt


Individual Retirement Accounts ("IRAs") (1) are booming. As of mid-2013, an estimated 46 million--more than three out of every ten--U.S. households owned at least one type of IRA. (2) As of the end of 2013, IRA assets totaled $6.5 trillion, accounting for 28% of U.S. retirement assets. (3) While IRA investments are increasing in popularity, there were still over 1 million bankruptcy filings in the United States in 2013. (4) Of those, 728,833 (68%) were non-business debtors filing for Chapter 7 bankruptcy. (5)

When a debtor files for Chapter 7 bankruptcy (6) in the United States, a bankruptcy estate is created by operation of law. (7) Once the estate is created, the Bankruptcy Code establishes what property and funds of the debtor are includable in the estate and what property may be excluded. (8) However, determining which property and funds can be included in the estate does not end the inquiry. Some property and funds that are included may still be exempted from the estate (9) for the debtor's fresh start. (10)

A bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." (11) However, there are some retirement funds that may be excluded from the bankruptcy estate, including: qualified education IRAs, (12) qualified employee benefit plans, (13) qualified deferred compensation plans, (14) and qualified tax-deferred annuities. (15) Further, of those retirement funds that are included in a debtor's bankruptcy estate, there are seven types of retirement funds that may then be exempted out of the estate to contribute to the debtor's fresh start. (16) Those funds include: (1) qualified pension, profit sharing, or stock bonus plans; (17) (2) qualified annuity plans; (18) (3) IRAs; (19) (4) Roth IRAs; (20) (5) retirement plans for defined controlled groups of employees; (21) (6) deferred compensation plans of state and local governments and tax-exempt organizations; (22) and (7) retirement plans established and maintained by defined tax-exempt or government organizations. (23)

In 2014, the Supreme Court of the United States decided the case of Clark v. Rameker, where it faced the undecided issue of whether an IRA inherited by a debtor prior to filing for bankruptcy may be exempted from the debtor's bankruptcy estate as part of her fresh start. (24) In reaching its decision in Clark, the Court addressed Bankruptcy Code Section 522(b)(3)(C), (25) which exempts from a bankruptcy estate a debtor's retirement funds, including those in a traditional or Roth IRA. (26) At issue in Clark was the potential exemption of an inherited IRA from a bankruptcy estate. (27)

This Note first discusses the subsequent history of Clark. Next, it discusses the legal history of both non-inherited and inherited IRAs leading up to the Clark decision. Then, it details the Court's decision in Clark. Finally, it concludes with a comparison of state and federal exemption schemes, using Missouri as an example, calling for reform of Bankruptcy Code Section 522(b)(3).


In 2001, Heidi Heffron-Clark inherited a traditional IRA from her mother, Ruth Heffron, upon her death. (28) Heffron had established the traditional IRA one year prior, in 2000, naming Heffron-Clark as the sole beneficiary. (29) At the time of inheritance, the IRA was worth just over $450,000. (30) Upon inheritance, Heffron's traditional IRA became an inherited IRA in Heffron- Clark's name, and Heffron-Clark chose to take monthly distributions from the account. (31)

In October of 2010, Heffron-Clark and her husband ("Petitioners") filed a Chapter 7 bankruptcy petition, identifying the inherited IRA as exempt from the bankruptcy estate under U.S.C. [section] 522(b)(3)(C). (32) At the time of the bankruptcy filing, the IRA's value had decreased to approximately $300,000. (33) The Chapter 7 bankruptcy trustee for the estate, Rameker, and unsecured creditors of the estate claimed that the funds from the inherited IRA were not exempt from bankruptcy because they "were not 'retirement funds' within the meaning of the statute. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.