Berryville case to be heard by U.S. Supreme Court
A Berryville couple will have their day in court ---- the United States Supreme Court, that is.
The Supreme Court announced Monday that it will decide whether federal bankruptcy law shields Individual Retirement Accounts from creditors.
The case is brought by Richard and Betty Jo Rousey, formerly of California. Richard declined to comment on the case, referring questions to his attorney.
According to Harrison attorney Claude Jones, the action is due to a decision of the 8th U.S. Circuit Court of Appeals that IRAs are not exempt from attachment by creditors in bankruptcy proceedings, while four other circuits in the U.S. have ruled that IRAs are exempt.
When such a conflict exists, Jones said, the Supreme Court will usually hear the case and determine what the law is.
"You are misfortunate if you live in Arkansas, Missouri, Iowa and the other states of the 8th Circuit," he said. "We are real pleased to get up there (to the Supreme Court). Only one out of 99 (cases) gets heard, and we got one of them."
Thomas Ray Brixey of the Jones Law Office represents the Rouseys. He will be assisted by Thomas C. Goldstein, a Supreme Court law expert with Stanford University.
Bloomberg News reported the decision Monday, stating that court papers note that IRAs represent enormous investments in people's future, and that even though Congress intended to encourage savings in IRAs, people may be leery of doing so if there is a possibility of losing it in bankruptcy.
Bloomberg reported that the Rouseys filed for Chapter 7 bankruptcy protection in 2001, and asked a bankruptcy judge to let them keep two IRAs worth $55,033 which were created by rolling over his pension plan and her 401(k), which they accumulated while employed with Northrop Grumman Corp.
The bankruptcy judge allowed the couple to keep $10,681 under a provision allowing exemptions for a home or burial plot, but said the other $44,352 must be distributed to creditors.
Federal law allows people in bankruptcy to keep payments under pensions, company stock bonuses or similar plans that are to be received due to illness, disability, death, age or length of service.
Citing people's ability to withdraw IRA money early, subject to a tax penalty, the St. Louis-based 8th U.S. Circuit Court of Appeals said that those payments are not made on account of age, and thus are not covered by the exemption.
Jones said that the decision is hypocritical, because early withdrawals are also allowed by pension and profit-sharing plans, stock bonuses and other plans shielded from creditors. Further, the federal government encourages persons to contribute to self-funded IRAs, in anticipation of Social Security shortfalls. Social Security payments are also exempted from attachment in bankruptcy proceedings.
The case, Rousey v. Jacoway, 03-1407 will be argued before the Supreme Court when the fall term begins.