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Your Retirement Plan in Bankruptcy

If needing to file bankruptcy, you may want to know what will happen to your retirement plans once you file. Naturally, after working hard for years and adding to retirement funds on a regular basis, the thought of losing those funds to file for bankruptcy can be more than alarming. Hard work and dedication are necessary to build up any type of retirement account, whether it is an IRA or 401k.

We get it. For those who struggle financially, the contributions to these types of retirement plans are even more significant. Filing for bankruptcy can help to eliminate debt but it must be in a way that protects important assets such as these.

The good news

In 2005, Congress passed new bankruptcy laws which allow people to keep the majority of their retirement accounts and pension plans when filing for either a Chapter 7 or a Chapter 13 bankruptcy.


When filing for a Chapter 7 bankruptcy, it is important to understand what “exemptions” mean. Exemptions are the amount that you can exclude from the bankruptcy in the form of various assets. For example, the amount of equity in a home, money in checking or savings, personal jewelry, vehicles, etc. Only a certain dollar amount can be exempt, which means that anything above that amount can be sold to pay creditors.

The benefit to the new bankruptcy laws is that there are no limits to how much money can be exempt in qualifying retirement accounts. This means that it can be worth $5,000 or $200,000 and still not be used to pay back debt. The key is making sure that the retirement account qualifies. Qualifying accounts include:

  • IRAs
  • 401(k)s
  • 403(b)s
  • Profit sharing plans
  • Keoghs
  • Money purchased plans
  • Defined benefit plans

IRA limitations

The only real limitation that someone needs to be concerned about is if they have a Roth IRA or a traditional IRA. In this case, the limit to what a court cannot touch is $1,283,025. All retirement accounts are calculated to get to this figure. If someone that has more than this in their retirement accounts, it would be better to file for a Chapter 13 bankruptcy. In Chapter 13, since it is a reorganization with creditors receiving some payments, no retirement accounts are touched in order to complete the process.

Also, keep in mind that if a married couple is filing for bankruptcy together, this amount applies to each. In other words, if one spouse has this much in retirement funds while the other only has $500,000, the retirement funds would not be touched when filing for a Chapter 7.

Work with an attorney

The best way to ensure that assets are protected is to hire a bankruptcy attorney. In our office, we help clients to receive the maximum exemptions allowed to them under the law. As such, we make it possible for our clients to keep more of their assets and they typically would if they were unfamiliar with the law and how to apply it.

Simultaneously, we help clients to get out from under debt or to reach a repayment plan that is both affordable and sustainable, in order to achieve greater levels of financial stability and future success. For help with your case, call today.

NOTE: This is for informational purposes only and does not constitute legal advice.