Bankruptcy Judge Finds State Law , Not SCOTUS ruling in Clark v Rameker, Applicable in Allowing Debtor to Exempt Inherited IRA

Bankruptcy Judge Finds State Law , Not SCOTUS ruling in Clark v Rameker, Applicable in Allowing Debtor to Exempt Inherited IRA

Before the Court is Trustee’s Objection to the Debtor’s Amended Schedule C—Property Claimed as exempt (the “Objection”). Debtor filed Debtor’s Response to Trustee’s Objection to the Debtor’s Amended Schedule C — Property Claimed as Exempt (the “Response”).

This case involves Debtor’s claim of exemption regarding her Inherited IRA. On May 3, 2016, Debtor filed her chapter 7 bankruptcy case. Debtor filed her original schedules on May 17, 2016, which included a claim of exemptions based on “state exemptions” under § 522(b)(3). Debtor’s schedules were then amended on July 28, 2016, to modify the selection of exemptions to “bankruptcy exemptions” pursuant to § 522(b)(2). On August 2, 2016, Debtor testified at the meeting of creditors that she inherited the IRA from her aunt. Trustee first objected to Debtor’s claim of exemption in the Inherited IRA on August 8, 2016, which resulted in an Agreed Order sustaining the Trustee’s objection. The Agreed Order denied Debtor’s claim of exemption in the Inherited IRA with prejudice to refiling under § 522(b)(2), but without prejudice to refiling under § 522(b)(3). Debtor amended her claim of exemptions for a second time, changing her election of exemptions back to “state exemptions” pursuant to § 522(b)(3) in order to argue that the Inherited IRA was indeed exempt. Debtor based her state law claim of exemption in the Inherited IRA on Section 42.0021 of the Texas Property Code. Trustee filed his Objection.

Trustee submits two reasons for why his Objection should be sustained. First, Trustee asserts that in Clark vRameker, the Supreme Court held that an individual retirement account that was inherited from a non-spouse did not meet the definition of “retirement funds” within the plain meaning of § 522(b)(3). 134 S. Ct. 2242, 2246 (2014). Trustee’s second argument is that § 42.0021 of the Texas Property Code does not protect this account as exempt. The Court, however, is not convinced by either arguments.

A. Does Clark Provide a Blanket Prohibition to Exemption of Inherited IRAs

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