When an individual debtor files a petition under the Bankruptcy Code, all property in which the debtor has a legal or equitable interest becomes part of the debtor’s bankruptcy estate. (See 11 U.S.C. Section 541(a)(1).) Creditor claims against the debtor are generally recoverable from property and funds included in this estate. However, in order to help the debtor obtain a “fresh start,” Section 522 of the U.S. Bankruptcy Code allows a debtor to exempt from its bankruptcy estate certain limited interests in various types of property. One such category of property includes “retirement funds” held in a fund or account that is exempt from taxation under specific sections of the Internal Revenue Code. For example, 11 U.S.C. Section 522(b)(3)(C) provides a retirement fund exemption for a debtor electing to exclude, from the bankruptcy estate, retirement funds that are otherwise exempt pursuant to state law; 11 U.S.C. Section 522 (d)(12) provides a retirement fund exemption for a debtor electing to exclude retirement funds that are otherwise exempt pursuant to federal law.
A strict reading of the applicable provisions of Section 522 of the Bankruptcy Code suggests that in order for funds to be exempted from inclusion in a debtor’s bankruptcy estate, those funds must be “retirement funds” held in one of the enumerated types of tax-advantaged accounts. While such accounts are specifically designated in Section 522, the Bankruptcy Code does not define “retirement funds.” As a result, debtors often assert that all funds held in any type of account designated in Section 522 are to be considered “retirement funds.” However, some bankruptcy trustees and other interested parties argue that the language of Section 522 limits the bankruptcy estate exemption only to certain kinds of funds held in such qualified accounts.
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