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The U.S. Supreme Court resolved a circuit split in an unanimous opinion in June 2014, in its decision in Clark v. Rameker. The court held that that funds in an inherited IRA are not "retirement funds" of the type that would be excluded from the debtor's bankruptcy estate.
One's "own" IRA and 401k will generally be protected from most creditor's claims in bankruptcy or from trustee liquidiation becauase they are not "property of the estate." Bankruptcy provides powerful protection to many types of retirement funds including most IRA and 401k accounts where the money was deposited by the person filing bankruptcy. This is seen as being in the public interest to protect essential needs. When someone "inherits" an IRA from someone else, balancing the needs of the parties weighs towards excluding those assets, according to the Court.
Potential filers should be aware of these limitations and be careful to inform their bankruptcy attorney whether they have saved their own money in their IRAs, or have inherited an IRA account. In future years with an aging population, it is forseeable than many everyday Americans will inherit an IRA. Even those who have an inherited IRA may be able to apply another exemption if available, or to file a Chapter 13 plan that prevents them from losing their IRA.
This is not legal advice and is provided for general information purposes; talk with a bankruptcy lawyer if you need bankruptcy advice.