Losing Your IRA in a Bankruptcy Proceeding—Can It Happen?

Can You Lose Your IRA Investment in a Bankruptcy Proceeding?

The Factors that Can Put Your Retirement Assets at Risk

Losing Your IRA in a Bankruptcy ProceedingThe 2005 revisions to the Bankruptcy Code specifically excluded individual retirement accounts (IRAs) from seizure by the bankruptcy court to satisfy creditors in a Chapter 7 liquidation proceeding. The exemption, however, is not absolute. There’s a ceiling on the amount of money you can protect in an IRA. In addition, there are other situations where funds in an individual retirement account can be available to creditors.

The Contribution Ceiling on Retirement Accounts

The limit on both traditional and Roth IRA contributions that may be exempt from the bankruptcy estate is currently $1,362,800 per person. It’s important to understand, though, that that limit applies to all your retirement plans combined. The ceiling is adjusted every three years to keep pace with cost of living increases. The most recent change to the ceiling was in April, 2019.

Using Rollover Funds for Personal Expenses

There’s no prohibition on rolling over IRA funds while you are in bankruptcy, but you need to be extremely careful. If you use any of the funds to pay personal expenses, the bankruptcy trustee may petition the court for access to those funds, arguing that they were comparable to a savings account. That may happen, even if you replenish the funds before the 60 day rollover period ends. This type of argument has been successfully made by trustees, though there are no court opinions ruling on its validity.

The best course of action—create a separate account exclusively for the rollover funds and don’t touch them—for any reason.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I offer a free initial consultation to all potential bankruptcy clients. 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.

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Call Rockwall bankruptcy lawyer Carrie Weir at 972-772-3083 or fill out the contact from below for a free, confidential consultation to discuss your options.

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