Times are tough for many New Yorkers. People are finding it difficult to find jobs that pay enough to cover all their basic living expenses, their medical costs, their student loans and credit card debt. The rising costs of basic essentials -- like gas and food -- doesn't help the matter. In some cases, people are turning to bankruptcy to try and eliminated some of their debts.
While there are many different types of consumer bankruptcy, people often turn to Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, certain assets are sold and the proceeds are used to pay down the person's debt. Any debt that remains following the liquidation of assets is then discharged. However, not all assets are sold during a Chapter 7 bankruptcy, both state and federal law defines certain bankruptcy exemptions. This is property that is exempt from sale and that the debtor can keep even after the proceedings are over. Exemptions ensure that consumers are not left destitute after a bankruptcy.
Recently, the Supreme Court of the United States heard arguments about a certain bankruptcy exemption. In the case, a woman filed for bankruptcy. However, she inherited an IRA retirement account worth $300,000 from her mother. Under federal bankruptcy laws, retirement savings are exempt property. However, the bankruptcy trustee -- who manages the sale of the assets -- argued that inherited IRAs do not qualify for the exemption.
During the arguments the Supreme Court justices questioned whether it was appropriate for courts to define retirement savings or if the job should be left to Congress. However, those representing the trustee argued that by allowing inherited IRAs to receive exempt status, people could potentially have access to large amounts of money while still getting the benefits of bankruptcy.
A decision by the Supreme Court on the issue is expected in the next few months.
Those considering bankruptcy in New York should understand how exemptions can be used for their benefit. Not only can be get a fresh financial start through bankruptcy, they can keep some of their personal property.
Source: Business Telegram, "Supreme Court hears case on bankruptcy-exempt inherited IRAs," Bill Rochelle, March 25, 2014