Will I Lose My Retirement Account if I File For Bankruptcy?

In most cases, you keep your retirement accounts in bankruptcy, with some exceptions. For instance, there is a limit to protections that apply to traditional and Roth IRAs. The applicable exemption applies to the total combined amount of all of an individual’s retirement plans.

If there are funds in excess of the exemption, a bankruptcy court may take the excess to repay creditors. General savings accounts, investment accounts and stock option plans are not protected if they are not an Erisa-qualified plan, and many are not.

If you file Chapter 13 or Chapter 7, retirement accounts are exempt from seizure. The protected ERISA qualified pension plans include IRAs (including Roth, SEP and SIMPLE), money purchase, profit-sharing and defined-benefit plans, and 401(k)s and 403(k)s.

It is important to note that not all retirement savings are protected under federal law, and some may be subject to seizure in a Chapter 7 filing or may be included in a payment plan in a Chapter 13. Recently, Courts have ruled that IRAs inherited from someone else are not exempt under the Bankruptcy Code and can be liquidated to pay creditors in bankruptcy cases.

Also, if you take money out of your 401(k) to pay debts, the money remaining in the account is no longer protected under federal law. For this reason, do not access your 401(k) unless you speak to an experienced Placidi, Parini, Grasinger & Page bankruptcy attorney.

Before declaring bankruptcy, the best course of action is to speak to a qualified bankruptcy attorney at Placidi, Parini, Grasinger & Page.

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