SUPREME COURT HOLDS IRA’s EXEMPT

April 4, 2005

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Debtors Richard Gerald Rousey and Betty Jo Rousey filed a Chapter 7 Bankruptcy Petition. Jill R. Jacoway was the US Trustee assigned to the case. The Rousey’s claimed their IRA’s as exempt from the bankruptcy estate. Trustee Jacoway objected to the exemption and moved that the IRA’s be turned over to the estate.

The Bankruptcy Court sustained her objection and granted her motion, and the Bankruptcy Appellate Panel (BAP) agreed. The Rousey’s appealed to the Eighth Circuit. The only issue reviewed by the Eighth Circuit was whether the payments were reasonably necessary for the debtors’ support, therefore the Eighth Circuit limited its decision to first two statutory requirements: whether, (i) the plan was established by an employer at the time the debtor’s rights under the plan arose, and (ii) payment is on account of age or length of service. 11 U.S.C. § 522(d)(10)(E) (2000).

The Eighth Circuit affirmed, concluding that, even if the Rouseys’ IRAs were “similar plans or contracts” to the plans specified in §522(d)(10)(E), their IRAs gave them no right to receive payment “on account of age,” but were instead savings accounts readily accessible at any time for any purpose.

The Supreme Court reversed, holding that the Rouseys’ IRAs fulfill both of §522(d)(10)(E)’s requirements at issue — they confer a right to receive payment on account of age and they are similar plans or contracts to those enumerated in §522(d)(10)(E).