The Bankruptcy Hotline

The U.S. Supreme Court has ruled that a debtor's Individual Retirement Accounts may be exempt from the estate as they “confer a right to receive payments on account of age and they are similar plans or contracts to those enumerated in ' 522(d)(10)(E).” In so ruling, the Supreme Court reversed the decisions of both the bankruptcy court and Eighth Circuit, which held that even if IRAs were similar to other exempt retirement plans or contracts, they differed significantly in that a debtor can access the funds in an IRA at any time and for any purpose (although with “some discouraging tax consequences”). The Supreme Court disagreed with this rationale finding that the early withdrawal penalties of the tax code to be a “substantial” deterrent, which suggest that “Congress designed it to preclude early access to IRAs.” Further, the court noted that the low rates of early withdrawals are consistent with this notion. Rousey v. Jacoway, 03-1407 (April 4).

Sole Shareholder Has No Equitable Interest in Corporate Property

The Seventh Circuit has ruled that where the sole shareholder of a closely held corporation files for bankruptcy before dissolving his corporation, he forfeits his equitable interest in the corporate property. The court observed that by filing his Chapter 7 petition before dissolving the corporation, the debtor's stock passed to the estate and consequently to the trustee, “who thereby acquired the equitable interest in the corporate property.” Fowler v. Shadel, 04-3229 (March 15).

Congress Approves Bankruptcy Reform Bill

Following approval by the Senate last month, the House voted 302-126 on April 14th to pass the controversial bankruptcy reform bill after 8 years of debate. The reform bill represents the most significant amendment to the Bankruptcy Code in the past 25 years and it is expected to be signed by the President without delay. This month's Special Issue of The Bankruptcy Strategist details the key aspects of the bill's commercial provisions.

Supreme Court Finds IRAs to Be Valid Exemptions

The U.S. Supreme Court has ruled that a debtor's Individual Retirement Accounts may be exempt from the estate as they “confer a right to receive payments on account of age and they are similar plans or contracts to those enumerated in ' 522(d)(10)(E).” In so ruling, the Supreme Court reversed the decisions of both the bankruptcy court and Eighth Circuit, which held that even if IRAs were similar to other exempt retirement plans or contracts, they differed significantly in that a debtor can access the funds in an IRA at any time and for any purpose (although with “some discouraging tax consequences”). The Supreme Court disagreed with this rationale finding that the early withdrawal penalties of the tax code to be a “substantial” deterrent, which suggest that “Congress designed it to preclude early access to IRAs.” Further, the court noted that the low rates of early withdrawals are consistent with this notion. Rousey v. Jacoway, 03-1407 (April 4).

Sole Shareholder Has No Equitable Interest in Corporate Property

The Seventh Circuit has ruled that where the sole shareholder of a closely held corporation files for bankruptcy before dissolving his corporation, he forfeits his equitable interest in the corporate property. The court observed that by filing his Chapter 7 petition before dissolving the corporation, the debtor's stock passed to the estate and consequently to the trustee, “who thereby acquired the equitable interest in the corporate property.” Fowler v. Shadel, 04-3229 (March 15).