Roth IRAs, like traditional IRAs, are excluded from Georgia debtor bankruptcy


In a first-print case, the Eleventh Circuit has ruled that Roth IRAs are excluded from the bankruptcy assets of Georgia debtors under Georgia’s Bankruptcy Code and garnishment law. In Hoffman vs. Signature Bank of Georgia (In re Hoffman), 2022 US app. LEXIS 2119 (11th Cir. Jan. 24, 2022), the court reversed the district court’s confirmation of the bankruptcy court’s order finding that the debtor’s Roth IRAs were not excluded from its bankruptcy estate. Writing for the court, Judge Wilson explained that Section 541(c)(2) of the Bankruptcy Code excludes the debtor’s real estate from a bankruptcy if three elements are met: (1) the debtor has an interest beneficiary in a trust; (2) the interest has a transfer restriction; and (3) the restriction is enforceable under federal or state non-bankruptcy law. It has not been disputed that the corpus of a Roth IRA is considered a beneficial interest in a trust. And the exemption provision of Georgia’s garnishment law, the court explained, provides that “[f]and benefits from an individual retirement account. . . will be exempt from the garnishment process”. OCGA § 18-4-6(a)(2). The court concluded that the garnishment statute clearly constitutes an enforceable restriction on the transfer and is applicable non-bankruptcy law. Thus, Roth IRAs met all three elements required for the exclusion of bankruptcy. Although the precedents only stated that traditional IRAs were excluded because of Georgia’s garnishment exemption, the cases predated the creation of Roth IRAs and changes to the garnishment exemption provision. Georgia case that clarified that IRAs and Roth IRAs should be treated the same. Thus, “the development of case law in this area and subsequent amendments to the Georgian Code reflect[ed] the intent of the Georgia Assembly to clarify that the two traditional IRAs. . . and Roth IRA. . . are exempt from garnishment, thereby subjecting IRAs to transfer restriction by state law. . . and making both types of IRAs eligible for exclusion under the Bankruptcy Code. The court quashed and remanded.


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