Preview: Scope of Protections for Retirement Funds in Bankruptcy at Issue in Case Before Supreme Court on Monday
Scheduled for oral argument on Monday, Clark v. Rameker presents the Supreme Court with a case that has a clean and straightforward question of statutory interpretation, with no looming shadow of oppressive media scrutiny, according to a SCOTUSBlog preview of the argument. Among the assets exempt from the estate of a debtor in bankruptcy, Congress has with steadily increasing generosity included a wide variety of retirement funds. The specific question in this case is whether those provisions exempt the $450,000 IRA that petitioner Heidi Clark inherited upon the death of her mother. If the IRA is exempt, she can keep it and use it for support after her bankruptcy; if it is not exempt, the bankruptcy court will take it and use it to pay creditors. The relevant statute is Bankruptcy Code § 522(b)(3)(C), which exempts “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under [seven listed sections] of the Internal Revenue Code.” The parties agree that the inherited IRA is exempt from taxation under one of those sections. The sole issue in dispute is whether the inherited IRA constitutes “retirement funds” for purposes of paragraph (C). Note that for bankruptcy debtors who have resided in California continuously for over two years, as of the date the debtor’s bankruptcy case is filed, such debtors (which is the great majority of individuals who file bankruptcy in California), do NOT used the federal (11 USC 522(b)(3)(C) exemptions. Instead California residents for over 2 years who file bankruptcy use the California state exemptions, which are CA CCP 703 and 704 sets of exemptions (debtors get to choose which). For such debtors, though the soon to be decided US Supreme Court case might be helpful by analogy, that case will NOT be controlling. Rather, the language of the California exemption statutes will be controlling.