Are Your Retirement Assets Safe When You File for Bankruptcy Protection?

April 15, 2019 By: Carrie Weir

You’ve worked hard to prepare for a secure retirement, faithfully making contributions to your IRA or to a 401(k). Then you experience health problems, or lose your job, and the bills become unmanageable. A personal bankruptcy filing may be the only way to get back on your feet again. If you file for bankruptcy, though, will you jeopardize your retirement? Will you be back to square one in planning for retirement?

Retirement Accounts Are Exempt in Bankruptcy Proceedings

As a general rule, pension and retirement funds are not available to satisfy claims by creditors in a bankruptcy proceeding. In a Chapter 7 filing, they cannot be liquidated to pay creditors. In a Chapter 13 petition, they won’t be considered to calculate your payments to creditors.

The rule governing pension and retirement assets covers all types of plans, including IRAs, 401(K)s, 403(b)s, profit sharing and money purchase plans, Keoghs and defined benefit plans. There is a ceiling, however, on the amount of IRA assets that can be protected—a maximum of $1,245,475 in IRA funds are exempt from bankruptcy proceedings. That’s an aggregate amount—not a ceiling for each IRA fund.

Funds You Receive from a Retirement Plan

The exemption applies only to funds in a retirement account. Once you start to take distribution of income from a 401(k) or IRA, those funds can and will be included in a Chapter 7 or Chapter 13 estate.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I provide a free initial consultation to anyone with questions or concerns regarding a bankruptcy filing. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.