Two months prior to the filing of bankruptcy by Ms. Corbell-Dockins and her husband, Kirk Morishita died leaving Corbell-Dockins the beneficiary of his 401k, which was rolled over into a 401k account in her name.
Starting from Clark v. Rameker, 573 U.S. 122 (2014), the Chapter 7 Trustee argued that the inherited 401(k) was non-exempt property of the estate, as the 401(k) account Corbell-Dockins inherited has the same legal characteristics as an inherited IRA. Further, the Trustee urged that allowing a Debtor to keep money would be a windfall that covert the fresh start of bankruptcy into a "free pass" to use those funds however she wanted.
Corbell-Dockins, however, took the position that the inherited 401(k) is excluded from the bankruptcy estate, and thus, no exemption analysis is required since the inherited 401(k) plan is an ERISA-qualified plan and included proper antialienation restrictions existed as of the petition date.
Finding that while inherited IRAs and 401k share many of the same characteristics, the bankruptcy court held that the correct analysis for the 401(k) was under under § 541(c)(2) as in Patterson v. Shumate, 504 U.S. 753, 759 (1992) and not under an exemption analysis under § 522(b)(3)(C) as in Clark. The Supreme Court in Clark focused on the meaning of “retirement funds” under § 522(b)(3)(C) but § 541(c)(2) makes no mention of that term. Further, the Supreme Court in Patterson even acknowledged that ERISA-qualified plans receive greater protection than IRAs in bankruptcy. See Patterson, 504 U.S. at 762-63. Lastly, even though Corbell-Dockins must withdraw all funds within a certain
amount of time and that withdrawal is without penalty, does not affect the analysis. Accordingly the 401k was excluded from the bankruptcy estate.
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