Many California residents are aware that there are certain exemptions that can be made during a personal bankruptcy case. That means that certain types of assets will not be included in the bankruptcy process, allowing individuals the right to make use of those assets as they see fit. Certain types of retirement savings are among the assets eligible for bankruptcy exemption. In one recent case, a bankruptcy court in California considered which types of retirement savings can be exempted from a Chapter 7 bankruptcy.
The case centers on a woman who inherited a pension from her father. The total value of that pension was estimated to be nearly $2 million. Bankruptcy law allows filers the right to receive pension payments if those payments are necessary to support the debtor, based on illness, age, disability or other factors. In this case, the issue before the court was whether the woman was entitled to receive pension payments based on the death of her father.
The court ruled that when it comes to exemptions, the intention is for a liberal interpretation that is in the debtor's favor. As such, inherited pensions are eligible for bankruptcy exemption. That means that the woman will be able to continue receiving monthly payments in the amount of $2,200, which is her only source of income.
For those in California who are uncertain about how bankruptcy exemption law might apply to their own case, it is important to contact a bankruptcy attorney to discuss the available options. It should be noted that IRAs that are inherited are not exempt from bankruptcy procedures. However, this case underscores the fact that inherited pension plans can be exempted from a Chapter 7 bankruptcy filing.
Source: Bloomberg BNA, "Ch. 7 Debtor Can Exempt $2M Inherited Pension in Calif.", Daniel Gill, Aug. 25, 2016