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Bankruptcy — retirement funds

United States Court of Appeals For the Seventh Circuit


Bankruptcy — retirement funds

A non-spousal inherited individual retirement account is not exempt in bankruptcy.

“At oral argument, the Clarks’ lawyer told us that reading the Bankruptcy Code to exempt assets that formerly were someone’s retirement funds, but have never been the debtors’ retirement funds, would encourage people to save in order to make larger bequests to their children. If parents know that anything in their IRAs could be passed to their relatives free of creditors’ claims, they would save more and draw less from IRAs during retirement. That’s true enough, but it does not imply an atemporal meaning of ‘retirement funds.’ One could equally say that it would promote savings to hold that any asset acquired from one’s relatives by will, insurance, annuity, or survivorship designation is exempt from creditors’ claims. That is not remotely what §522 provides, however. It is always possible to get more of whatever objective may have prompted a given clause, but ‘no legislation pursues its purposes at all costs. Deciding what competing values will or will not be sacrificed to the achievement of a particular objective is the very essence of legislative choice—and it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute’s primary objective must be the law.’ Rodriguez v. United States, 480 U.S. 522, 525–26 (1987) (emphasis in original). Section 522(b)(3)(C) and (d)(12) does not throw creditors’ claims to the wolves in order to enhance the savings and bequest motives. It provides a specific exemption for retirement funds—and inherited IRAs do not qualify, because they are not savings reserved for use after their owners stop working.”


12-1241 & 12-1255 In the Matter of Clark

Appeals from the United States District Court for the Western District of Wisconsin, Crabb, J., Easterbrook, J.

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