Will My Retirement Plan be Taken Away in Bankruptcy?
In most every case, retirement funds are not taken or liquidated during a Chapter 7 or Chapter 13 filing. There are, however, some limitations, on retirement funds that bankruptcy filers are allowed to keep.
Depending on the bankruptcy laws and the given state, bankruptcy may handle aspects of retirement planning differently. Loans from retirement plans and voluntary contributions, for instance, may be affected by bankruptcy.
Retirement Accounts Considered Exempt
Congress revised the bankruptcy laws in 2005 and made nearly all retirement account and pension plan funds exempt from creditors. This means individuals can keep them, regardless if they file a Chapter 7 or Chapter 13 bankruptcy. With just a few exceptions, the exemption amounts are unlimited, which makes most retirement accounts completely protected. Some types of retirements accounts are only protected up to a certain dollar amount, so be sure to discuss your situation with a bankruptcy attorney before filing.
Some of the plan types that are included in this exemption are:
- IRAs (ROTH, SEP and SIMPLE)
- Profit-sharing plans
- Defined benefit plans
- Money purchase plans
It is important to note that while funds in a retirement account are exempt in most cases, retirement benefits that are paid as income are not. For example, in a Chapter 7 bankruptcy, the courts cannot take away any funds that are necessary to a person's basic living expenses. But it could remove amounts that are over and above what's needed for support in order to pay back creditors.
In a Chapter 13 bankruptcy filing, income from a retirement account may be used to fund the repayment plan. In this situation, the portion of the retirement funds would not be protected, necessarily, as it is serving as a source of income.
In addition to federal protections, each state may also have its own set of laws to safeguard retirement plans that could be influenced by bankruptcy filings. So it is important to be aware of the state laws when it comes to bankruptcy and retirement funds.
Connect with a Lawyer Near You
If you would like more specific information on how your retirement plan may be affected by a bankruptcy filing, connect with a local attorney now. Just fill out the free bankruptcy evaluation form below to find a sponsoring lawyer in your state.