Is my IRA account protected when I file for chapter 7 bankruptcy?

An IRA is a type of retirement account. When it is properly set up as a retirement account, this account falls into the categories of assets that are most often protected by bankruptcy exemptions. Bankruptcy exemptions protect specific property from the seizure and sale by the bankruptcy trustee and creditors. However, there are limits to their value and the types of exemptions available differ from one state to the next.

How an IRA Is Treated

An IRA, or an Individual Retirement Account, is a type of retirement vehicle in which the individual funds the account him or herself. By contrast, a 401k may be funded, at least in part, by an employer as is a pension. However, in order for an IRA to be protected under bankruptcy laws, it must be an established retirement account.

There are stipulations on protecting this type of account from Chapter 7 bankruptcy trustees.

• The IRA must be funded properly, and the funds must be used for retirement benefits or other qualified means. Ensure your bank has documentation showing it is an IRA.
• The amount in the IRA may be deemed excessive in some situations. While there is no specific dollar value assigned, those with an IRA with a value over one million should discuss this with their attorney.
• You should not be putting more than is legally allowable into the IRA each year.

Protecting retirement income is important for anyone filing bankruptcy. The same limitations are in place for other types of retirement accounts.

Hire an Attorney

If you are facing bankruptcy, protect your assets by hiring an attorney. The attorney will work closely with you to determine the best course of action for protecting these assets.