You should speak with a bankruptcy attorney about all assets, including retirement accounts, if you plan to file bankruptcy. If you have been building your retirement for decades, then it is understandable that you have concerns about these accounts when filing for bankruptcy. Naturally, you do not want to lose something you worked so hard to build. Fortunately, with the bankruptcy laws being revised in 2005, you should be able to keep your retirement.
What does this mean?
When you file for a chapter 7 liquidation bankruptcy, the trustee can liquidate your assets to pay creditors. They cannot, however, liquidate any “exempt” assets. Your retirement account may be exempt. On the other hand, when you file chapter 13 bankruptcy, the trustee will look at your assets and income to determine a monthly payment plan. Your retirement accounts should be exempt from this calculation so they should not be impacted by your bankruptcy filing.
Are all retirement accounts exempt?
While many retirement accounts are exempt, some are not. It is important to note that exempt accounts include your:
- IRA
- 401k
- 403b
- Keoghs
- Money purchase plans
- Profit-sharing plans
- Defined-benefit plans
What you have to watch for is that some accounts have limits to the exemption. Roth and traditional IRAs are exempt up to $1,283,025 per person in total. This means that if you have several retirement accounts that equal more than $1,283,025, the trustee could use the additional funds to help pay creditors. Keep in mind that this is an individual exemption so even if you are filing for bankruptcy as a married couple, your individual retirement accounts can each add up to the limit without being touched. This limit goes up every three years based on the cost of living so ask what the current limit is when you meet with a bankruptcy attorney in our office.
What about retirement income?
If you have already retired, the rules are slightly different. Any benefits that you are currently collecting are looked at as income just like if you were working a normal job. Funds you are paid above and beyond what you need to support yourself can be used by the trustee to pay your creditors. Due to this, it is important to work with a bankruptcy attorney who can put a plan in place for protecting your assets, including your ongoing retirement income.
Therefore, when considering filing for bankruptcy, you should meet with one of our attorneys and go through all your options. We will review your assets and let you know what is likely exempt and what might be liquidated. In addition to your retirement funds, your home, personal property and a portion of your liquid cash may also be exempt.
To speak with us about your personal financial situation, call and schedule an appointment today.
NOTE: This is for informational purposes only and does not constitute legal advice