Should Bankrupts Be Allowed To Hide Retirement Assets?
April 28, 2000
Sen. Charles E. Grassley (R-Iowa) thought he was only trying to make sure wealthy debtors don't evade creditors by shifting assets to retirement accounts in cases of bankruptcy. He inserted a provision to that effect in the Senate-passed version of the bankruptcy reform bill.
But in doing so, he raised the ire of the Clinton administration, which believes the retirement assets of bankrupts should be protected from creditors.
- Critics say the language would invite credit-card issuers, banks and other lenders to write waivers into cardholder agreements and loan documents to be used if borrowers declare bankruptcy.
- Currently, pension plans covered by the Employee Retirement Income Security Act are protected by federal law from creditors in the event of bankruptcy and would not be directly affected by Grassley's provision.
- But assets from such plans are commonly rolled over into individual retirement accounts at retirement or after a job change.
So a rollover would expose the assets to creditors. An official of the American Association of Retired Persons predicted the measure would invite "abuse by predatory lenders."
Grassley's staff says it's wrong to let a big-spending debtor who has declared bankruptcy stick it to the little guy by stashing millions of dollars in a retirement account to avoid paying his fair share.
Source: Albert B. Crenshaw, "Bankruptcy Reform Under Fire," Washington Post, April 27, 2000.
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