When you file for bankruptcy, you might be clear on what happens to your property, car, bank accounts, and other personal items. But you might be worried about your retirement accounts.
Are these treated like checking or savings accounts?
Can I file exemptions to protect my retirement funds?
Most Retirement Accounts Are Exempt
Fortunately, when you file for bankruptcy, you can typically protect your retirement accounts through exemptions. Exemptions are laws the protect some portion of your assets through bankruptcy to save some assets that you need to work and to live. This can include the equipment you use on your job, your clothes, some household items, your car, and other property – including most retirements.
You can mark most ERISA-qualified retirement and pension accounts as exempt. However, there are stipulations. To be exempt, most notably you need to keep the money in the retirement accounts. For instance, if you withdraw the money and all of your 401(k) money is in a checking account prior to the bankruptcy, it is NOT protected by the retirement exemption laws. You need to pursue other options with your bankruptcy attorney to protect the funds.
You can also fall back on state and federal exemptions to protect your retirement accounts. In Oregon and Washington, PERS, IRA, 401(k), 403(b), and other qualified retirement accounts are 100% protected against creditors in bankruptcy.
Protected Retirement Accounts
ERISA-qualified retirement accounts are typically protected from bankruptcy. But, what does that mean? Which accounts are ERISA-qualified? As a very general rule, ERISA plans include retirement accounts that are paid by using wage deductions. These are examples of ERISA-qualified plans.
- Thrift Savings Plan
- Oregon PERS
- Federal FERS
- IRAs (Roth, SEP, and SIMPLE, but see limitations discussed below)
There are limits as to how much you can mark exempt in your IRS and Roth IRA. You can mark up to $1,512,350 exempt per person (over all of your retirement accounts). Anything over this in your account can be used to pay your creditors.
If you are not sure if your retirement plan will be protected during your bankruptcy, work with your bankruptcy attorney. They will be able to help you along the way to try to get your account marked as exempt.
Accounts That Are Not Protected
While most traditional retirement accounts are protected during bankruptcy, there are some that you will not be able to mark as exempt under the retirement exemptions. These can include:
- Stock accounts
- Day trading
- Cash accounts like checking or savings accounts.
To protect these accounts, you would need to examine other exemptions laws to see if those laws apply to your assets.
Also included on this list is any money that you cashed out of your accounts. Any money you withdraw from your retirement accounts will not be protected as a retirement account. It would be exempt under the protections for cash accounts (which are significantly lower).
This includes any payments you are receiving from your retirement accounts. The court will consider this to be income. If you are filing for Chapter 7 bankruptcy, the payments from your accounts will be factored into your means test to determine if you qualify to file for Chapter 7 (unless they are from Social Security). If you are filing for Chapter 13 bankruptcy, payments from your retirement account will impact how much of your unsecured debts you must pay back through your repayment plan.
Why You Need a Bankruptcy Attorney
When it comes to protecting your retirement accounts, it’s essential to consult an experienced bankruptcy attorney. You worked hard to build up those accounts, and you don’t want to risk losing the money. A bankruptcy attorney knows the ins and outs of the system and can help you protect your retirement funds and advise you on the right steps to take.
** A word of caution: Before you cash out your retirement accounts to pay debts or hold somewhere in other non-retirement account, if you are considering bankruptcy, talk to a bankruptcy attorney prior to the transfer or cashing out of monies to best determine how these assets are protected in a bankruptcy filing.
Let Us Help You
If you are filing for bankruptcy and are concerned about your retirement accounts, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. review your options and help you decide if bankruptcy is the right option for you. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.