Inherited IRAs are protected in bankruptcy – sometimes

In a recent ruling, the U.S. Bankruptcy Court for Minnesota held that an inherited IRA was protected from the debtor’s creditors under federal law. In re: Nessa, 105 AFTR 2d 2010-XXXX, 01/11/2010.  The key difference between this decision and the earlier Texas and Florida decisions that held the inherited IRAs were not protected from creditors is that in Minnesota, bankruptcy debtors rely on federal property exemptions rather than state exemptions.  In many states, including Texas, Florida and North Carolina, debtors must use state exemptions.