In most cases, retirement funds are excluded from bankruptcy cases. In other words, usually when debtors file bankruptcy, their retirement accounts are safeguarded and creditors will not have access to them.
This comes as great relief particularly to people in the latter part of their careers who are facing bankruptcy. Learn more about the effects of bankruptcy on retirement accounts as well as some other exemptions from which you might benefit.
Retirement Accounts Are Generally Exempt
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 provides that debtors’ retirement accounts – both ERISA- and non-ERISA plans – are exempt. This means that if you file a Chapter 7 or a Chapter 13, you will be allowed to retain these assets.
In order for a retirement plan to be exempt, it must be a “qualified plan.” Fortunately, most retirement accounts do qualify. As long as a plan complies with the Internal Revenue Code of 1986 (funds that qualify for special tax treatment), the funds are protected in a bankruptcy claim.
Below are some retirement accounts that are generally exempt in bankruptcy cases.
- Pensions
- 401(k)s
- 403(b)s
- Profit-sharing plans
- Defined contribution plans
- Keoghs
- Money purchase plans
- Traditional IRAs
- Roth IRAs
- SEP IRAs
- SIMPLE IRAs
Limitations on Retirement Exemptions
There are some limitations on retirement-related exemptions. There is no cap on the amount of funds that are exempt in employer-sponsored retirement plans, SIMPLE IRAs, and SEP IRAs. However, in Roth and traditional IRAs, only up to $1 million is exempt although the bankruptcy court does have the authority to exempt a larger amount if it deems the action appropriate.
Also, if you are filing a Chapter 13 bankruptcy, you will generally not be permitted to continue contributing funds to your employer-sponsored retirement account.
This is because, the way the bankruptcy courts view it, contributing money to a retirement account takes away money that could be used to pay back creditors. If your employer makes employee-contribution “mandatory,” you’ll need to discuss the situation with your attorney, who will advise you accordingly.
Additional Benefits of Bankruptcy
In addition to the effects of bankruptcy on retirement accounts, the bankruptcy law provides numerous additional exemptions.
Below are some items that debtors may exempt in the bankruptcy filing.
- Home
- Vehicle
- Child support
- Alimony
- Public assistance
- Unemployment benefits
- Social Security retirement income
- Veterans retirement income benefits
- Life insurance policy
- Jewelry, tools, and other household items (to a certain extent)
The exemptions are dependent on whether you choose to use Texas bankruptcy exemptions or federal exemptions. You must choose whether you use the state or federal exemptions. Talk to your attorney about which might be best for your circumstances.
Questions? Contact a Texas Bankruptcy Lawyer at Warren & Migliaccio
If you are contemplating filing for bankruptcy, speak with an attorney about how the process works, what you are allowed to keep, and the effects of bankruptcy on retirement accounts.
While bankruptcy is a last resort and can be stressful, our bankruptcy attorneys at Warren & Migliaccio can guide you through the process and handle many of the burdens for you.
When you make it through to the other side, it can be like an immense weight has been lifted from your shoulders. To speak with a bankruptcy attorney call Warren & Migliaccio in Dallas for a consultation. We will discuss your situation, answer your questions, and explain your best route. Contact us today at (888) 584-9614.
