Inherited IRAs- Are They Safe From Creditors?


In the last few years, the issue of whether creditors can reach retirement funds inherited by individuals who are in bankruptcy proceedings or contemplating bankruptcy, has become a hot topic. In many courts around the country, this has been labeled a "question of first impression", meaning, it is the first time this question has come before such courts.

It seems that many courts are now concluding that these assets are exempt. Of course, each case is different and depends on the circumstances surrounding the inherited retirement funds, however, this trend is positive news for debtors.

In one of the most recent decisions on the subject, Chilton v. Moser (In re Chilton) , the Fifth Circuit found on appeal that an inherited IRA with $170,000 was exempt due to the fact that it was rendered exempt from taxation under a specific IRC provision following its transfer from the deceased to the debtors and the fact that this provision was specifically named in Section 522(d)(12), the federal exemption for certain retirement funds.

Similarly, in a Ninth Circuit United States Bankruptcy Appellate Panel case, Mullen v. Hamlin (In re Hamlin) , the court considered whether a debtor could claim an exemption under Section 522(b)(3)(C) in an IRA the debtor inherited from her grandmother, and concluded that a debtor can exempt funds in an IRA inherited from a non-spouse. It should be noted that not all courts agree with the analysis in Chilton and Hamlin, however, these cases are positive news for persons considering bankruptcy.

If you are contemplating filing for bankruptcy and are concerned about an inherited IRA or other retirement funds you have received from a deceased individual, it would serve you well to speak with a qualified bankruptcy attorney about your case.

Questions or interested in a consultation about your case? Email me at or call me at (914) 752-5098.