Do You Get To Keep Your Roth IRA Even If You File Bankruptcy? In Georgia, Yes, Says The Eleventh Circuit

• Published date: 28 February 2022
• Subject Matter: Employment and HR, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Retirement, Superannuation & Pensions
• Law Firm: Arnall Golden Gregory
• Author: Mr Michael J. Bargar

In an issue of first impression, the Eleventh Circuit Court of Appeals has ruled that a Roth IRA is not property of a bankruptcy estate in Georgia. Hoffman v. Signature Bank of Georgia, Case No. 20-12823 (11th Cir. Jan. 24, 2022). This means that a bankruptcy trustee cannot get to the Roth IRA for the benefit of creditors. Although this creates a possible barrier for creditors and bankruptcy trustees attempting to liquidate assets held in retirement accounts, it does not necessarily mean that individual retirement accounts are always excluded from administration in an individual bankruptcy case.

Factual and Procedural Background in Hoffman v. Signature Bank of Georgia

In Hoffman, the debtor was a retired Air Force Colonel who had personally guaranteed a large SBA loan that his son-in-law used to operate a restaurant. In re Hoffman, 605 B.R. 560, 563 (Bankr. N.D.Ga. 2019) (Drake, J.). After the business failed, the bank initiated a lawsuit against the debtor, the son-in-law, and the debtor's daughter. Id. Shortly thereafter, the debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code (as did his son-in-law and daughter). Id.

On his bankruptcy disclosure forms, the debtor scheduled interests in over $1.7 million held in various retirement accounts, including a 401(k), a traditional IRA, and two Roth IRAs, and he exempted the entire value of those accounts under various subsections of O.C.G.A. ' 44-13-100(a). Id.

Following an objection to the debtor's claimed exemptions in these accounts, the bankruptcy court addressed, among other things, the following issues: (a) whether the two Roth IRAs were excluded from the debtor's bankruptcy estate under 11 U.S.C. ' 541(c)(2); and (b) if they were property of the bankruptcy estate, whether they were exemptible under Georgia's exemption statutes. Id. at 563-64.

The bankruptcy court found that the Roth IRAs were property of the bankruptcy estate, but held that they were not exemptible under applicable Georgia law because they were not reasonably necessary for the support of the debtor or his wife. Id. at 569. This meant that the Chapter 7 trustee could get to those Roth IRAs and use them to pay the debtor's creditors. The debtor conceded that the Roth IRAs were not exemptible, but appealed the holding that they were property of his estate to the district court. The district court declined to overrule on what was an issue of first impression. The debtor then appealed to the Eleventh Circuit...