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Are inherited IRAs exempt in bankruptcy filings in Arizona?

Debtors struggling with their finances may have an Individual Retirement Account and be worried about what will happen to it if they declare bankruptcy. Generally, the assets accumulated in this account or in a 401(k)-style account are protected from creditors, and experts claim that the protections granted in Arizona are generally stronger than in many other states. What does this mean for Arizona residents warding off creditors but hesitant to file for bankruptcy because they are unsure about available bankruptcy exemptions?

According to Arizona state law, assets or money in retirement plans payable to either the participant or beneficiaries is exempt from all creditor claims from both the participant and the beneficiary. These assets generally include life insurance policies, annuities and health and disability policies as well. State law generally governs IRAs and does not have to conform to federal protections.

Even though a Supreme Court decision earlier this year changed the rules regarding inherited IRA protections-creditors could access the assets in these accounts left by the decedent to their beneficiaries-this change does not affect Arizona residents yet. State law continues to protect these assets, as long as the beneficiary inherits before declaring bankruptcy. If the beneficiary lives in another state however, the outcome could be different.

Filing for bankruptcy is an important decision financially strapped Arizona residents make in order to wipe out most of their debt while retaining possession over some assets. The relief that comes with filing bankruptcy can be immense, but to ensure they are availing all the protections available to them, Arizona residents may want to consider consulting an experienced bankruptcy attorney.

Source:, "Retirement-plan benefits include creditor protections," Russ Wiles, July 7, 2014

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