Will Bankruptcy Affect My Retirement Accounts?

People often worry that they’ll lose everything in bankruptcy. Nothing could be further from the truth. In fact, bankruptcy allows filers to keep many of their assets, including their retirement accounts. However, a few limitations do exist. In this article, we discuss the effect that bankruptcy can have on retirement accounts and pensions.

You Get to Keep Most Retirement Accounts in Bankruptcy

Bankruptcy exemptions allow filers to keep certain property. Common exemptions include one’s home, car, and household belongings. In addition, nearly all ERISA-qualified retirement accounts and pension plan funds are exempt from bankruptcy. 

Chapter 7 Bankruptcy

If you file for Chapter 7 bankruptcy, you may lose some of your property. However, your retirement funds should be safe due to federal and state laws.

Chapter 13 Bankruptcy

If you file for Chapter 13 bankruptcy, you’ll keep your retirement accounts, and the amount of the balance won’t affect how much you are required to repay creditors in your Chapter 13 repayment plan. 

Fully Protected Retirement Accounts

Although there are a few exceptions, the exemption amounts for the following types of retirement accounts are unlimited, meaning that the entire retirement account is protected:

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

Traditional and Roth IRAs

For traditional IRAs and Roth IRAs, an exemption limitation exists per person. This amount is updated every year, but it is currently over one million dollars. So, if your traditional or Roth IRA exceeds this limit, the bankruptcy court can use the excess funds to pay back your creditors.

Withdrawn Retirement Benefits 

Although creditors can’t touch the funds in your retirement accounts, retirement benefits that you receive as income aren’t exempt.

Chapter 7 Bankruptcy

If you receive monthly payments from a retirement account or pension, the court will consider it income. Therefore, this amount will be included in your Chapter 7 means test qualification. In Chapter 7 bankruptcy, the bankruptcy court can’t take any retirement benefits that you need for your support, but it may be able to take amounts beyond this.

Chapter 13 Bankruptcy

With Chapter 13 bankruptcy, any retirement income you receive will be used to determine what portion of your unsecured debts you have to repay in your Chapter 13 repayment plan.

The Bottom Line

Although most of your retirement funds should be protected when you file for bankruptcy, you shouldn’t attempt to navigate the bankruptcy process alone. In order to ensure that you keep what you’re entitled to in bankruptcy, it is strongly advised that you obtain the services of an experienced bankruptcy attorney. 

Contact a Milwaukee Bankruptcy Lawyer 

If you would like to explore your bankruptcy options in Milwaukee, you should contact an experienced Milwaukee bankruptcy lawyer as soon as possible. At Hanson & Payne, our experienced bankruptcy attorneys offer bankruptcy and debt negotiation services for individuals in Milwaukee and southeast Wisconsin. So, if you’re ready to explore your options with an experienced bankruptcy professional, please contact us as soon as possible to schedule a consultation.