What happens to my IRA in bankruptcy?

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Question:

What happens to my IRA in bankruptcy?

Answer:

If you file for bankruptcy with an IRA, you can rest assured that you will generally be able to keep that IRA, no matter what chapter of bankruptcy you file. This is because:

  • Under a chapter 13, no assets are affected at all (including your IRA). 
  • Under a chapter 7, an IRA and other qualified retirement accounts are usually considered exempt from the requirement that you liquidate your assets and turn them over to the court. 

In this way, an IRA is distinct from other types of assets that you may have, like a savings account. With assets that do not fall into the list of bankruptcy exemptions (a list that includes some home equity, in addition to retirement accounts) you will need to turn them over in a chapter 7 bankruptcy. The assets you turn over will have to be sold, and the trustee will then take the money from your accounts and from the sale of your assets and will divide it up among the creditors based on the priority assigned to their claims. 

Thus, while you don't need to worry about your IRA, if you have a signifiant amount of other assets, you may lose those with a chapter 7. If you want to avoid this, a chapter 13 may be right for you... but there are downsides to that too since you'd then have to repay your debts over a three to five year period. 

To make the decision about what chapter of bankruptcy is right for you, it is in your best interests to speak with a lawyer for guidance. 

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