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“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Written by Craig D. Robins, Esq.An individual retirement account is certainly exempt in a New York bankruptcy case. However, there is no clear-cut answer as to how much is exempt.
The exemption statute that protects IRA accounts in New York is set forth in the New York Debtor and Creditor Law section 282(2)(e), which totally exempts IRA accounts “to the extent reasonably necessary to support the debtor and the debtor’s dependants.”
Most consumers who file for bankruptcy in New York need not worry about this distinction. I have never seen a situation where a trustee has tried to go after an IRA with a value of a few hundred thousand dollars or less. Most consumers have IRAs that are worth much less than that.
However, what issues would be involved with trying to ascertain if an IRA worth several hundred thousand dollars or more is exempt?
Here the trustee, and ultimately the bankruptcy court, would look at the reasonableness of the debtor needing the full amount of the account. This would result in an analysis of the debtor’s factual situation. In interpreting the facts, the court would also look at Congressional intent and prior case law.
Congress has decided that consumers should be able to protect over a million dollars in an Individual Retirement Account
Let’s first look at what Congress recently determined to be reasonable. The 2005 Bankruptcy Amendment Act changed the federal exemption amount for IRA accounts (Code section 522(n)) by increasing it to $1,000,000 per individual. The Judicial Conference increased this amount again in February 2007 to $1,095,000.
Although New York has opted out of the federal exemption scheme, which means that this provision does not apply to bankruptcy cases filed in New York, we cannot ignore Congress’s evaluation as to what a reasonable IRA exemption is.
Congress determined that a reasonable amount is $1,095,000. As a matter of fact, the federal exemption is not even limited to $1,095,000. The federal statute provides that this amount can be increased “if the interests of justice so require.”
We also need to be mindful of, and accommodate, the significantly strong legislative intent behind the policies and goals underlying the new laws to protect retirement accounts and encourage regular deposits into retirement accounts. This is demonstrated in the various provisions permitting deductions for retirement accounts in the means test. In other words, Congress made it clear that it wants consumers to have retirement accounts.
Accordingly, the legislative intent is certainly to protect a large amount of funds in retirement accounts and encourage deposits into them.
There has not been much New York case law on this issue since the bankruptcy laws changed in 2005. However, most trustee should be persuaded by the above argument. I have already convinced one aggressive trustee to leave a debtor alone whose family retirement accounts were half a million dollars.
