Possible Limit On IRA Exemption In Florida Bankruptcy Cases

Someone asked me this week if Florida’s unlimited creditor exemption of IRA accounts applies in bankruptcy court. After looking at the provisions of the 2005 bankruptcy law I concluded that the unlimited IRA exemption may not apply when someone files bankruptcy in Florida. Bankruptcy law has a set of default property exemptions in Bankruptcy Code section 522 (d). These exemptions, however, do not apply to Florida bankruptcy debtors because Florida has "opted out" of the 522 (d) exemptions and substituted its own set of property exemptions including an unlimited IRA exemption. However, another sections of the 2005 bankruptcy law, Section 522 (n) places a cap on IRA exemptions in bankruptcy of approximately $1 million. Florida has not opted out of Section 522(n) so I expect that the $1 million IRA cap would apply even though Florida has chosen to opt out of the default exemptions in 522(d).

I have not had this issue in any of my cases. In the first place, few bankruptcy debtors have $1 million IRA accounts, especially now after the stock market collapse of 2008. Most bankruptcy debtors will deplete a large IRA before filing bankruptcy in an attempt to pay their debts. Additionally, the bankruptcy code provides exceptions to the $ 1 million IRA cap.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida