The question posed above in the headline for this blog entry is an inquiry that goes far beyond academic musing, given the many millions of Americans poised to receive or already receiving IRA assets inherited through their parents.

The image provided by the Wall Street Journal of “aging crowds of baby boomers” leaving such assets to their children seems picture-perfect: One estimate posits that more than $5.7 trillion has been stashed away in sheltered retirement accounts by about 45 million American households.

What happens in Arkansas or elsewhere if the child of a baby boomer parent who inherits IRA money through mom or dad subsequently files for Chapter 7 bankruptcy? Is the money that was beyond the reach of creditors before it was passed along through inheritance still beyond their grasp?

A definitive answer to that question is not readily available at the moment, but is expected to be early summer.

The reason for the timeframe: The United States Supreme Court heard initial arguments late last month in a case posing that very question, and its ruling in the matter is anticipated to issue before the end of June.

The court’s input seems flatly necessary, owing to lack of unanimity in lower federal courts.

In other words: Some federal judges think that IRA money that was protected from creditors while it was being saved should maintain the same beyond-creditors’-reach status for beneficiaries who inherit it, with others believing that the rationale for its protected status disappears once it is inherited.

The high court’s ruling will obviously be important. High numbers of boomer children are inheriting IRA assets, and it seems likely that the treatment of such funds will increasingly become a major issue in bankruptcy cases in future years.

Many would-be and actual bankruptcy filers are not fully aware of the many assets that are typically beyond the reach of creditors in a Chapter 7 bankruptcy filing. An experienced bankruptcy and debt-relief attorney can provide relevant details and provide diligent representation to a client with debt-related concerns.

Source: The Wall Street Journal, “U.S. Supreme Court hears bankruptcy fight over inherited IRA money,” Katy Stech, March 25, 2014