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How bankruptcy can help you keep your retirement accounts

For many people, retirement accounts are among their most valuable assets. After working hard to accumulate this nest egg for your retirement, the last thing you want is to lose it. When dealing with debt issues, it may feel like the assets in these accounts may be at risk - especially when you are running out of options for repayment to creditors.

Through bankruptcy, you can obtain relief from excessive debt. Is it possible to keep your retirement accounts are protected during the bankruptcy process?

According to the Employee Retirement Income Security Act (ERISA), qualified retirement plans are not part of the bankruptcy estate. This means they cannot be used by the trustee to pay back creditors during a Chapter 7 bankruptcy or be included in the repayment plans for Chapter 13 bankruptcy.

ERISA-qualified plans include:

  • 401(k)s
  • 403(b)s or profit-sharing plans
  • 457(b) deferred compensation plans
  • Government plans
  • Tax-exempt organization plans

The entire value of these accounts is protected from bankruptcy liquidation and repayment. Non-ERISA qualified plans are protected by Federal bankruptcy laws, but only up to a certain amount. These plans include:

  • IRAs
  • Roth IRAs
  • SEP-IRAs for small business owners
  • SIMPLE IRAs for self-employed individuals
  • Other retirement plans

Currently, you can only protect a combined total of $1,245,475 from these accounts. The rest is subject to inclusion in the bankruptcy estate.

It also is inadvisable to withdraw funds from your retirement account before or during the bankruptcy process. This makes the entire amount vulnerable to inclusion in the bankruptcy estate. Additionally, withdrawing funds early results in additional tax and other penalties.

For assistance with your retirement strategy during bankruptcy, contact an experienced attorney.

 

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