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Bankruptcy court protects debtor interest in annuity

A decision by the Eight Circuit Bankruptcy Appellate Court may have ramifications for debtors from Orlando and throughout the country. The Court recently upheld a decision that Chapter 7 and Chapter 13 debtors could protect their annuities from creditors, even if those annuities resulted from rollovers from other IRAs and had more liberal distribution policies.

Bankruptcy law has protected traditional IRAs from depredations by creditors ever since the Bankruptcy Abuse Prevention Act of 2005. That Act provided protection for debtors who needed to keep their IRAs intact in order to have retirement funds. Because those funds were difficult to access and were not readily available to debtors, bankruptcy courts generally declared these funds exempt from creditor distribution.

However, the Trustee of one bankruptcy case took exception to the rule and attempted to have the debtor's annuity of nearly $250,000 made available to creditors. This was because the annuity was the result of a rollover from an IRA and had very generous distribution terms, in which the debtor could take money out almost immediately without penalty. However, the court sided with the debtor, declaring that the terms of the annuity did not exempt it from protection under bankruptcy law, and the appellate court upheld this decision.

Debtors who are facing creditor garnishments or lawsuits may find relief through the filing of a bankruptcy. A bankruptcy attorney may be able to help the debtor decide if bankruptcy is right for his or her situation and which Chapter may be most appropriate for a bankruptcy petition.

Source: Life Health Pro, "Bankruptcy court rules IRA annuity shielded from creditors", Jeffrey Levine, November 20, 2013

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