The U.S. Supreme Court will hear a dispute in the bankruptcy of a small-town pizza shop owner, taking on a case that could dictate how inherited individual retirement accounts are treated in bankruptcy, Reuters reported yesterday. The Supreme Court said yesterday that it would hear arguments in Clark v. Rameker in a fight over whether Heidi Heffron-Clark and her husband, Brandon Clark, can keep creditors from going after $300,000 in an IRA inherited from Heffron-Clark's late mother. The Clarks declared bankruptcy in 2010 after the pizza shop they opened in their home town of Soughton, Wis., fell victim to economic hardship, said Michael Murphy, the couple's lawyer. The Clarks owed about $700,000 to their landlord, mortgage lenders, trade creditors and others, Murphy said. That means the roughly $300,000 in the IRA could make a big difference in overall creditor recoveries. William Rameker, the trustee in charge of administering the couple's bankruptcy estate, took the position that the IRA was fair game for creditors, but the Clarks argued that it was exempt under bankruptcy laws, which generally protect retirement funds. After an initial victory for Rameker was reversed by a district court, the matter went before a three-judge panel in the 7th Circuit U.S. Court of Appeals. In an April opinion written by Chief Judge Frank Easterbrook, the panel sided with Rameker, saying creditors could access the inherited IRA. Easterbrook held that while bankruptcy laws exempt retirement funds from creditor claims, IRAs cease to be "retirement funds" when inherited from a deceased owner. Under existing law, distributions under an inherited IRA must begin within a year of the prior owner's death and finish within five years. The ruling clashes with decisions in both the Fifth and Eighth Circuits, where judges have held that IRAs do not cease to be retirement funds when they change hands.
