Supreme Court Rules that Inherited IRAs Are Not Protected in Bankruptcy

Supreme Court Rules that Inherited IRAs Are Not Protected in Bankruptcy

ABI Bankruptcy Brief | June 12, 2014
 
  

June 12, 2014

 
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SUPREME COURT RULES THAT INHERITED IRAS ARE NOT PROTECTED IN BANKRUPTCY

A unanimous Supreme Court ruled (9-0) today in Clark v. Rameker, 13-299, that inherited individual retirement accounts are not retirement funds within the meaning of the Code, the Associated Press reported today. The decision clears up a circuit split about the status of unspent IRAs that parents leave to their children. Bankruptcy law typically protects retirement assets from the reach of creditors. But unlike a typical IRA, money in an account inherited from a parent can be withdrawn without waiting for the new owner to retire. Writing for the court, Justice Sonia Sotomayor said that this crucial change in the status of the account makes it less like retirement savings and more like a pot of money available to pay off creditors. Otherwise, Sotomayor said, nothing would prevent someone who declares bankruptcy from using the entire balance of an inherited IRA "on a vacation home or a sports car immediately after her bankruptcy proceedings are complete." The case was featured in the March issue of the ABI Journal. Click here to read the opinion affirming the Seventh Circuit and the bankruptcy court.


COMMENTARY: IS DELAWARE LAW A FAVOR TO PLAINTIFF LAWYERS, OR SHAREHOLDER PROTECTION?

A proposed law that would reverse a Delaware Supreme Court decision allowing "loser pays" provisions in corporate bylaws has encountered strong opposition in the state legislature as critics say that it would remove a powerful tool for cutting down on frivolous shareholder litigation, Forbes.com reported yesterday. Last week the Delaware Senate Judiciary Committee approved S.B. 236, which prohibits any bylaws that "impose any monetary liability, or responsibility for any debts of the corporation, on any stockholder," in response to the high court decision to uphold a private company's loser-pays provision that many lawyers said might also be applied to stockholder-owned corporations. The bill's sponsor, Democratic Sen. Bryan Townsend, said that he will set the bill aside for a while amid vocal opposition by the U.S. Chamber Institute for Legal Reform, according to the Wilmington News Journal. The bill seems to restore the status quo by affirming the limited liability nature of corporations, in which shareholders can only lose money to the extent of their investment. But the ILR said that the proposed law -- passed, it noted, on "an extraordinarily expedited basis" -- would reverse a decision that "gives corporations a way to protect their shareholders" against the costs of "abusive litigation." Read more.

LAWYERS SAY THAT GM IS SEEKING BANKRUPTCY SHIELD FROM LAWSUIT

Lawyers for a Georgia family that is trying to reopen a wrongful death lawsuit against General Motors say that the company is trying to move the case to federal court so it can use bankruptcy as a shield from the claim, the Associated Press reported yesterday. The lawyers, Lance Cooper and Jere Beasley, said yesterday that GM's court filings run counter to a promise made by GM CEO Mary Barra to fairly compensate families of people killed or those injured in crashes caused by defective ignition switches. A federal bankruptcy judge in New York ruled in 2009 that the new GM is shielded from claims stemming from cars made before the company emerged from bankruptcy protection. Instead, the claims go against the old GM, which has limited assets. The judge is now being asked to decide if he will allow claims against the new company. Cooper and Beasley say that moving the case to federal court would allow the company to use the bankruptcy to send claims to the old GM. Ken and Beth Melton sued GM three years ago in Cobb County, Ga., in the death of their daughter, Brooke Melton, in 2010. The 29-year-old nurse died when her 2005 Chevrolet Cobalt skidded on a county road, hit another car and ended up in a creek. The lawsuit alleged that she was killed after the Cobalt lost power due to a faulty ignition switch, causing her to lose control of the car. Read more.

SENATOR WARREN'S BILL TO REFINANCE STUDENT LOANS DIES IN THE SENATE

Senate Republicans yesterday shot down legislation sponsored by Sen. Elizabeth Warren (D-Mass.) that would have let borrowers with federal and private loans issued prior to 2010 refinance at 3.86 percent--the interest rate that Congress set for federal student loans a year ago, the Washington Post reported yesterday. "We're not giving up," said Warren, who championed the Bank on Students Emergency Loan Refinancing Act. "Homeowners are refinancing. Small businesses are refinancing. We just want young people who got an education to have their shot." Warren failed to get the 60 votes needed to advance the legislation on Wednesday, with a 56-38 vote on the Senate floor. The Obama administration estimated that the bill could have helped 25 million borrowers save an average of $2,000 over the lifetime of their loans. The president touted the legislation on Monday when he signed an executive order to let people who took out federal loans before 2007 pay no more than 10 percent of their income in monthly payments. Despite public outcry against mounting student debt, Warren's bill was a long shot as Republicans said that the bill did nothing to reduce borrowing or lower education costs. There was little chance that the GOP would back a bill that also called for the creation of a new tax on high earners to offset the cost of lowering interest rates. Read more.

The student loan debt crisis was the subject of ABI's Student Debt Symposium, held on May 30 at Georgetown University Law Center. If you were unable to attend, you can purchase all sessions from the program on ABI's eLearning site! This unique day-long symposium, funded in part by a grant from the National Conference of Bankruptcy Judges Endowment for Education, featured academics, consumer bankruptcy practitioners, bankruptcy judges, consumers and policy-makers addressing the causes, consequences and possible reform of the student debt problem. Click here to purchase.

ABI MEDIA TELECONFERENCE TOMORROW MORNING TO EXAMINE SUPREME COURT'S RULING IN EXECUTIVE BENEFITS INSURANCE AGENCY V. ARKISON

ABI will be holding a media teleconference tomorrow at 9 a.m. ET that will present experts involved in the Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency; 12-1200) case discussing the effects of the Supreme Court's ruling on June 9. Featured speakers are Prof. John Pottow, who argued the case, and Danielle Spinelli of WilmerHale (Washington, D.C.). A limited number of participant spots are still available for ABI members to join the teleconference. If you would like to participate in the teleconference, please contact ABI Public Affairs Manager John Hartgen at 703-894-5935 or [email protected]

WHAT DO CHIEF BANKRUPTCY JUDGES THINK OF THE RULING IN BELLINGHAM? LEARN AT MONDAY'S ROUNDTABLE: ATTEND IN PERSON OR VIA LIVE WEBCAST!

Even a unanimous Supreme Court ruling can leave many questions unanswered: Is the Court signaling a future rejection of jurisdiction by consent? Will the resolution of "Stern claims" be delayed by requiring district courts to weigh in? Will bankruptcy judges expedite Stern claims so that those that aren't settled are quickly ruled upon, then packaged together with other Stern rulings for their respective district court? Will local rules be amended with the new reality that consent won't fly, and that Stern claims must be fast-tracked? What is left for the BAPs? How will bankruptcy courts -- and those practicing before them -- find new and innovative ways to identify and process Stern claims quickly to avoid having them be bottlenecks to case resolution?

For a brief analysis of the Supreme Court's decision in Bellingham, please click here to read a summary by C. R. "Chip" Bowles and James Irving of Bingham Greenebaum Doll LLP (Louisville, Ky.).

Gain critical insights into the Supreme Court's ruling in Bellingham at the ABI Workshop Bankruptcy Roundtable on June 16 at the ABI Conference Center in Alexandria, Va. Hear two panels of prominent chief bankruptcy judges weigh in on the issues; more than 50 chief judges from across the nation will be in attendance. Join them in person or via webstream. A networking reception will follow for in-person registrants. Click here for details and registration.

NEW CASE SUMMARY ON VOLO: BURTON V. INFINITY CAPITAL MANAGEMENT (9TH CIR.)

Summarized by Laury Macauley of the Macauley Law Group

The Ninth Circuit Court of Appeals affirmed the district court's denial of summary judgment, holding that an attorney who prepared an order to show cause at the request of a judge is not entitled to absolute quasi-judicial immunity on a claim for violation of the automatic stay provision of § 362.

There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.

NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: A CASE FOR THE EXPANDED USE OF MEDIATION IN BANKRUPTCY CASES

A recent blog post lays out a proposal for the expanded use of mediation (also known as "facilitation") in chapter 11 cases and complex chapter 7 cases.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

A special Bankruptcy Code chapter 14 should be created for "TBTF" (too-big-to-fail) financial institutions.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

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