Filing Chapter 7 Bankruptcy With an IRA Account

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If you have an IRA bankruptcy may or may not be the route for you to take. In bankruptcy law, some types of retirement accounts receive special protection. This means that these accounts, when used properly, are not assets within the bankruptcy estate. A bankruptcy estate encompasses all your assets and debts, except for exemptions. The IRA may be protected, but it is important to ensure that you work with an attorney to get that level of protection for your retirement account.

IRA Account Protection

In a Chapter 7 bankruptcy, the bankruptcy trustee liquidates assets over and above the limits imposed by your state or the federal government to refund creditors as much as possible. However, IRA accounts, or Individual Retirement Accounts may receive specialized protection under the bankruptcy code. Keep the following in mind.

  • The Employee Retirement Income Security Act of 1974 provides special exclusions for retirement accounts from the bankruptcy estate, as long as those retirement accounts fit within its limits or qualifications.
  • Traditional IRAs, Roth IRAs, SIMPLE IRA's and SEP IRA's are protected under the state's laws where you are filing in most cases, with limitations.
  • If you have a Traditional IRA or a Roth IRA, assets up to $1 million receives protection. That number may change over time, but is based on the increases in the Consumer Price Index and adjusted every three years.
  • If you have a SEP or SIMPLE IRA your assets are protected for an unlimited amount of money.

Keep in mind that you do have limitations in that the account must be specifically labeled as one of these types of retirement accounts in order to qualify for protection. If these are the types of accounts you have, the bankruptcy trustee is unable to liquidate the funds to repay your creditors. In addition, creditors are unable to file a lawsuit against you to claim these funds. Other types of savings accounts, including standard savings, checking, CD's and investment accounts do not receive this type of protection under bankruptcy law.

Hiring an Attorney

For those who are considering Chapter 7 bankruptcy and who have an IRA bankruptcy attorneys may be the best route to take. These attorneys can offer advice and guidance on how to protect your assets and how to get rid of your debt through bankruptcy or other means. It is important to ensure that your attorney knows about your IRA accounts so he or she can help you to protect them.