Article

Creditor Access to IRA Funds in Pennsylvania
Compensation & Benefits Update

Kirkpatrick & Lockhart LLP

Spring 1998

In February 1997, the Court of Appeals for the Third Circuit issued the ruling In re Barshak, 106 F.3d 501 (3d Cir. 1997). A Chapter 7 debtor rolled over $71,134.75 from his employer's retirement plan to his own IRA. The court ruled that, based on the plain language of Pennsylvania's bankruptcy statute, only $15,000 of the amount rolled over was exempt from attachment or execution on a judgment. Under the statute, amounts in excess of $15,000 contributed by a debtor to a retirement fund within a one-year period or within one year of a debtor filing for bankruptcy are not exempt. The court found that a rollover to an IRA was one contribution in a single year and thus only $15,000 was protected from the reach of creditors.

In response to Barshak, House Bill 1048 was passed in February 1998. The amended statute states that amounts that are rolled over from one retirement fund to another by a debtor within one year of the debtor declaring bankruptcy are not included in the above exclusion, and therefore are covered by the exemption. Similarly, amounts in excess of $15,000 rolled over in one year from one retirement fund to another are no longer excluded from the exemption. Thus, notwithstanding amount or date contributed, amounts contributed to an IRA by virtue of a rollover from a qualified retirement plan or another IRA will be exempt from attachment or judgment by creditors under Section 8124(b)(1)(ix) of Title 42 of the Pennsylvania Consolidated Statutes.

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Copyright 1998 by Kirkpatrick & Lockhart LLP. Permission to reproduce is granted provided Kirkpatrick & Lockhart LLP is acknowledged as the source of this document. Reprinted on BenefitsLink by permission.