Chapter 7 Bankruptcy and Retirement Funds

If you have retirement funds bankruptcy can or cannot be the right move for you to make. In many cases, retirement funds are protected under the bankruptcy laws because these funds provide you with the means to get yourself back on track after you file for bankruptcy. However, you do need to have one of the qualified plans in order for this to occur. It is best to speak to your attorney about any funds you have in retirement plans so that he or she can help you to protect them if it is possible to do so.

Understanding Bankruptcy and Retirement Funds

In most cases, retirement funds are not accessible to the bankruptcy trustee because they are not part of the bankruptcy estate. Your bankruptcy estate is comprised of the debts and assets you own. At the time of your filing, the trustee takes ownership of your assets with the goal to liquidate any possible to repay your creditors. However, like other protections, retirement funds are often not part of this estate.

Keep the following in mind as you plan to file for bankruptcy, though.

• Retirement plans such as employer sponsored plans must fall under the guidelines of the Employee Retirement Income Security Act of 1974 in order to receive protection from bankruptcy. This usually includes 401K plans and other types of employer funded and maintained accounts.
• If you have an Individual Retirement Account, including IRA’s and Roth IRA’s, these funds are protected as long as the retirement account falls under the same Act’s requirements. However, there is a maximum allowable amount associated with these accounts which is currently set at $1 million. In some situations, accounts with more than this, and no protection under the act may be liquidated to repay creditors.

In most situations, individuals should be able to keep funds from a retirement account protected from the bankruptcy estate, but this only goes for those funds you can prove are in a retirement based account. If you have a savings account or other types of accounts, these funds may not be protected. (See also filing bankruptcy with substantial retirement funds).

Hiring an Attorney

During the bankruptcy process, you will be able to protect a great deal of your assets if you work with an attorney. The attorney will help you to take full advantage of the bankruptcy exemptions and limitations available so that you can keep as much of your property as possible. An attorney can also advise you on how to protect retirement funds.