Clark v. Rameker
134 S. Ct. 2242
| SCOTUS | 2014Background
- Petitioners filed for Chapter 7 and sought to exempt roughly $300,000 in an inherited IRA under 11 U.S.C. §522(b)(3)(C).
- Bankruptcy Court disallowed the exemption, ruling inherited IRAs do not share the characteristics of retirement funds.
- District Court reversed, holding the exemption covers any account originally accumulated for retirement purposes.
- Seventh Circuit reversed the District Court, aligning with the view that inherited IRAs are for current consumption, not retirement savings.
- The Court granted certiorari to resolve a circuit split and held that inherited IRAs are not retirement funds under §522(b)(3)(C).
- Three statutory/accounting characteristics of inherited IRAs demonstrate they are not set aside for retirement: no contributions allowed, mandatory withdrawals, and penalty-free access to the full balance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do inherited IRAs qualify as retirement funds under §522(b)(3)(C)? | Clark contends inherited IRAs are retirement funds because they originated as retirement accounts. | Rameker argues inherited IRAs lack retirement fund characteristics and are for current consumption. | Inherited IRAs are not retirement funds. |
| Does the structure 'retirement funds to the extent that' in §522(b)(3)(C) limit the exemption to funds with retirement-like features? | Petitioners claim the broad category may not independently limit; funds once retirement funds should qualify. | Respondents contend the category and the limiting language together determine eligibility; inherited IRAs fail the retirementFunds test. | The phrase requires funds to be retirement funds and in a covered account; inherited IRAs fail the retirement funds test. |
Key Cases Cited
- Rousey v. Jacoway, 544 U. S. 320 (2005) (exemption framework balancing debtor and creditor interests)
- Schwab v. Reilly, 560 U. S. 770 (2010) (exemption scope must not create windfalls; fundamental purpose of exemptions)
- In re Chilton, 674 F.3d 486 (5th Cir. 2012) (circuit split regarding inherited IRA exemptions)
- United States v. Security Industrial Bank, 459 U. S. 70 (1982) (exemption policy protects essential needs of debtors)