High Court to Ponder IRA Bankruptcy Exclusion

June 7, 2004 (PLANSPONSOR.com) - U.S. Supreme Court justices have agreed to take on a case involving whether people seeking protection from the U.S. Bankruptcy Court can shield their Individual Retirement Accounts (IRA) from being seized by their creditors.

The case involving Richard and Betty Jo Rousey will be argued at the Supreme Court in the term which begins in the fall, the Associated Press reported.

The couple has already lost with the U.S. 8 th  Circuit Court of Appeals, which  ruled in October 2003that IRAs should not be exempted from a person’s bankruptcy estate and pointed out that Congress could easily change the law if it wanted to protect IRAs.   Bankruptcy law protects payments from a person’s pensions and annuities, but does not mention IRAs.

The 8th Circuit held that because the Rouseys could withdraw money, the IRAs were like “readily accessible savings accounts.” The Rouseys have about $55,000 in two accounts that was rolled over from pensions and 401(k) plans at their previous employer, Northrop Grumman.

Their attorney, Thomas Goldstein, told justices in a filing that the case is important because of the popularity of IRAs and the large numbers of people who file for bankruptcy protection. About a third of American households have a traditional IRA, which “typically represents an enormous investment in one’s future,” he said.

The case is Rousey v. Jacoway , 03-1407.