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Are investment accounts protected in Chapter 13 bankruptcy?

Even when faced with a financial crisis, many Kentucky residents have the foresight to look ahead. The goal is to solve the current problem without creating a long-term one that can possibly affect one's ability to retire and enjoy life. For some, how Chapter 13 bankruptcy can affect their investments is a concern.

Employer sponsored 401K plans are often a valuable source of retirement income. They are also the place where a good portion of the average individual's investment portfolio is housed. Fortunately, these investment accounts are protected in most cases. For example, creditors typically cannot look to these accounts for payment. The one primary exception to this is amounts due to the IRS.

IRA accounts are also protected to a certain extent. In most instances, these investment accounts are excluded from use to repay debt under bankruptcy. This exclusion is limited to a value of $1.3 million in IRA accounts. However, if the individual is withdrawing income from these accounts, this income is included as income considered as part of the bankruptcy.

Pension plans are also a concern for some individuals. These plans are often the primary source of income for the individual upon retirement. Depending upon the status of the pension plan, it is likely that they, too, are excluded from the bankruptcy proceeding.

In addition to looking at one's current financial position, many Kentucky residents are concerned about the long-term effects that a Chapter 13 bankruptcy can have on their future. In most instances, Chapter 13 bankruptcy allows the individual to establish a repayment plan that allows them to retain most, if not all, of their current assets in addition to their investment accounts. Experienced legal counsel can review one's situation and help determine the appropriate steps to take.

Source: fool.com, "Can Creditors Seize My Investments During Bankruptcy?", Sarah Szczypinski, July 19, 2017

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