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Bankruptcy and Retirement Plan Accounts

Are Retirement Accounts Exempt in Bankruptcy?

Under Chapter 7 bankruptcy and Chapter 13 bankruptcy, virtually all retirement accounts, including pension plan funds, are exempt from creditors.This means that these funds are immune and cannot be touched by creditors when you file for bankruptcy. Moreover, they will not affect the amount you are required to repay unsecured creditors because they do not count towards your disposable income.

Which ERISA Plans Are Protected in Bankruptcy?

Importantly, the United Stated Supreme Court stated that any ERISA-qualified plan, a plan that falls under the Employee Retirement Income Security Act of 1974 (ERISA), does not belong to the bankruptcy estate. It is for this reason retirement plans are safe when a person decides he/she might file for bankruptcy.

Some ERISA retirement plans that are protected are:

  • 401(K)
  • 403(b): also known as profit sharing plans
  • 457(b): also referred to as deferred compensation plans
  • Governmental plans
  • Tax-exempt organizational retirement plans

Furthermore, most of these plans are protected up to an unlimited amount. This means that if you decide to file for bankruptcy, not a single dime can be taken from your retirement plans and distributed to creditors.

Are IRAs Also Protected in Bankruptcy?

Non-ERISA plans such as IRAs are also covered by these laws. However, there is a distinct difference in the amount protected. In fact, many traditional IRAs, as well as other IRAs, are capped at $1,245,475. Therefore, any amount over that may not be protected from bankruptcy. It is important to note that this cap-amount is changed every three years as inflation changes the dollar value.

What Should I Do if I Am Considering Filing for Bankruptcy?

Because bankruptcy can seem a bit tricky, stressful, and unsettling, it is best to speak with a bankruptcy lawyer regarding your specific situation. By doing so, you can ensure that you are making the appropriate moves throughout your process and that your retirement funds are protected. After all, you worked hard for your money; no one should be able to take away a lifetime of work.

The Southern California bankruptcy attorneys at Wadhwani & Shanfeld understand the stresses that come when contemplating bankruptcy options. We are here to help you protect not only your retirement savings, but your future as well. Call the firm today to schedule your free consultation.

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