Bankruptcy: IRA Accounts and Exemptions

     The United States Bankruptcy Court, in Smith v. Bryant, ruled that the debtor’s IRA funds were not excluded from the bankruptcy estate. In doing so, the Court examined and explained that there are significant differences between IRA's and ERISA-qualified retirement plans, the provision in Bankruptcy Code §541(c)(2) exempting qualified funds from the bankruptcy estate does not apply to the IRA funds in this case.

     In Smith the debtor, after her termination of employment from a bank, rolled over her interest in a stock and thrift plan at the bank into her own individual retirement account. The debtor argued that the IRA should have been excluded from her bankruptcy estate because the assets used to fund the IRA had been accumulated in an ERISA-qualified retirement plan.
     In reviewing the differences between ERISA-qualified retirement plans and IRAs, the Court noted that IRAs are subject to almost complete control by its owner and do not contain the same anti-assignation and non-alienation provisions required under ERISA-qualified plans. The Court stated that if the debtor had an interest in a trust that contained an anti-alienation provision that was created under Virginia law, such an interest would also be excluded from her bankruptcy estate under Bankruptcy Code §541(c)(2). Nevertheless, because the debtor created her IRA and had complete control over the funds in it, the funds were not exempt from the bankruptcy estate, and the debtor was ordered to turn the funds over to the trustee.
     The Court's ruling in Smith clarifies the issue regarding IRA accounts and exemptions, and with debtors frequently changing jobs, the issue is likely to resurface in many instances.

Bankruptcy: Homeowners' Association Assessments and the Chapter 13 Automatic Stay

  The United States Bankruptcy Court in Alexandria, Virginia, in the case of Montclair Property Owner’s Association, Inc. v. Reynard, ruled that a homeowner’s association may collect post-petition assessments from a Chapter 13 debtor’s property that is not property of the bankruptcy estate.

     In making its decision, the bankruptcy court noted that courts have taken different approaches with respect to the extent of the bankruptcy estate after confirmation of a Chapter 13 plan and, indeed, whether there is an estate after confirmation.  The bankruptcy court ruled, however, that Bankruptcy Code §1306(a) includes in the Chapter 13 estate all property acquired by the debtor after confirmation, including future earnings.  If the Chapter 13 estate did not have these assets, it could not pay pursuant to the plan.

     In this case, no relief from the automatic stay was necessary, as there was no judgment yet obtained to execute upon.  However, the court did rule that no relief from the automatic stay is necessary to collect post-petition homeowner’s assessments from property that is not property of the estate.  Collection activities may only be directed to property of the debtors, not property of the estate.  All post-confirmation earnings are property of the estate.