What is an inherited IRA? It is the IRA a non-spouse beneficiary receives upon the death of the IRA holder. Unlike a spousal beneficiary, the non-spouse beneficiary must maintain an inherited IRA in the name of the decedent for the benefit of the beneficiary. What is at stake? When the beneficiary files for bankruptcy protection, are the assets of the inherited IRA part of the bankruptcy estate and available to pay claims of creditors? Or is the inherited IRA exempt from the bankruptcy estate and free from creditor claims? Recent court cases have differing answers. While protection of qualified plan accounts is governed by federal law, protection of IRAs is largely a matter of state law. Many states offer creditor protection. When it comes to inherited IRAs, however, some courts are unwilling to extend that protection. The result may depend on whether the federal or state bankruptcy exemptions are applied. Two recent cases highlight the conflicting outcomes. In a decision by the Bankruptcy Court for the Eastern District of Texas (In re Chilton, E.D. TX, 2010), the court found that the inherited IRA was not an exempt asset. In contrast, the Bankruptcy Appellate Panel in the Eighth Circuit (Nessa, In re Nancy, Bktcy 8th Cir., 2010) held an inherited IRA was exempt because it was exempt from taxation and therefore represented retirement funds. Beneficiaries of inherited IRAs should seek specific advice regarding the protection of the account in a bankruptcy proceeding; and even then, depending on where they are located, the answer may not yet have been decided.