April 20, 2018

Retirement Account Documents – Read the Fine Print

We ran across a very interesting decision by Eastern District of Tennessee bankruptcy judge  Judge Richard Stair that disallowed the debtor’s claimed exemption of a $61,000+ retirement account in his Chapter 7 bankruptcy.   In the James L. Daley case, Judge Stair ruled in favor of the Chapter 7 trustee, who had objected to the exemption.  This means that if he remains in Chapter 7, Mr. Daley will have to liquidate his retirement account and pay the funds to the trustee.

Why did this happen?  The retirement funds at issue were contained in a Merrill Lynch IRA that appeared to constitute a qualified retirement account by the IRS.  Merrill Lynch even provided the debtor with a letter from the IRS stating that IRA accounts of this type had been deemed qualified.  So far so good.  Qualified retirement accounts are “exempt assets” in Tennessee bankruptcy cases.

The problem was this – the fine print of the account contained two problems:

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