By: Donald L Swanson
I’ve always maintained that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) is heavy on “preventing abuses” (mostly phantom abuses) and skinny on “protecting consumers.”
IRA Exemption in BAPCPA
But there is a consumer protection in the Bankruptcy Code, added by BAPCPA, that is important for many individual debtors:
- it’s the exemption for individual retirement accounts (“IRAs”).
About IRAs, BAPCPA adds these two § 522 provisions:
- subsection (n) says, “For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code . . . the aggregate value of such assets exempted under this section . . . shall not exceed $1,000,000” [which is now an inflation-adjusted $1,512,350]; and
- subsection (b) says, “(b) (1) . . . an individual debtor may exempt from property of the estate the property listed in . . . paragraph (3) of this subsection”; and said paragraph (3) says, “(3) Property listed in this paragraph is— . . . (C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code.”
Nebraska’s IRA Exemption
Back in the day (circa 2005), when I first learn of the foregoing IRA provisions in BAPCPA, my reaction is this:
- “That’s a bummer because Nebraska [the state where I live and practice] has opted out of the federal exemptions, so this IRA exemption won’t apply here.”
The “bummer” is because Nebraska’s state law IRA exemption is restrictive:
- Neb.Rev.Stat. § 25-1563.01 limits its IRA exemption to “the extent reasonably necessary for the support of the debtor and any dependent of the debtor”; and
- a pre-BAPCPA opinion limits a married couple’s Neb.Rev.Stat. § 25-1563.01 exemption in their $170,000 IRA to $50,000 (In re Reetz, Case No. 01-43159 (Bankry. Neb., July 14, 2003)).
In re Euse
Then comes In re Euse, Case No. 10-43179 (Bankry. Neb., March 2, 2011).
To my surprise, the Nebraska Bankruptcy Court rules in Euse that:
- BAPCPA’s IRA exemption applies to Nebraska debtors.
What follows is a summary of the In re Euse opinion.
–The Facts
Debtor claims his $163,000 IRA to be exempt under § 522(b)(3)(C).
–The Question
The Euse question is this:
- whether the § 522(b)(3)(C) IRA exemption (enacted as part of BAPCPA) can be claimed by a Nebraska debtor, since Nebraska has opted out of the § 522(d) exemptions?
–The Opt Out from § 522(d) Exemptions
The Bankruptcy Code lets a debtor exempt certain property. But there are two separate exemption schemes: (1) exemptions listed in § 522(d); and (2) exemptions under state laws and under federal laws other than § 522(d).
The Bankruptcy Code allows states to opt out of the § 522(d) exemptions, requiring debtors to claim exemptions under state laws and non-§ 522(d) federal laws.
The State of Nebraska has opted out of § 522(d) exemptions via Neb. Rev. Stat. § 25-15,105, which says:
- “The federal exemptions provided in 11 U.S.C. 522, subsection (d), are hereby rejected by the State of Nebraska. The State of Nebraska elects to retain the personal exemptions provided under Nebraska statutes and the Nebraska Constitution.”
–The Non-§ 522(d) Federal Exemptions
So, a Nebraska debtor does not get a choice of exemption schemes.
However, under § 522(b)(3)(A)&(C) a Nebraska debtor can still claim all of these exemptions (despite Nebraska’s opt out from 522(d) exemptions):
- property exempt under state laws;
- property exempt under federal laws other than § 522(d); and
- retirement funds exempt from taxation under specified Internal Revenue Code provisions—i.e., IRAs.
The objecting Creditor asserts in Euse that, if a state has opted out of § 522(d) exemptions, then a debtor in that state is limited to that state’s exemption scheme, exclusively. But such a position is not supported by the Bankruptcy Code:
- § 522(b)(1) very clearly gives the debtor the choice of exempting property listed in paragraph (3)—including IRAs; and
- the State of Nebraska may have rejected the exemptions in § 522(d), but Nebraska debtors can still utilize the exemption scheme described in § 522(b)(3)(A)-(C).
Therefore, a Nebraska debtor is entitled to claim the § 522(b)(3)(C) IRA exemption, in addition to exemptions under state law.
And Creditor’s objection to the In re Euse Debtor’s IRA exemption is overruled.
Conclusion
This past Sunday (April 20, 2025) is the twenty-years anniversary of the day BAPCPA was signed into law (April 20, 2005).
In honor of that anniversary, here’s an acknowledgement that BAPCPA did provide a substantial “consumer protection” via its IRA exemption that can apply throughout these United States—even in states that have opted out of the § 522(d) exemptions.
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