Filing for bankruptcy is always a difficult pill to swallow and it can be even more challenging when you are close to retirement or have already retired. A prime concern for you would definitely be your retirement accounts.
Are Retirement Accounts Exempt from Bankruptcy?
This depends on the tax status of the account under the revenue code. Most accounts that are exempt from taxation are also exempt from bankruptcy. Another factor that is considered is the value of the account.
ROTH, ERISA and Individual Retirement Accounts (IRAs) are not considered to be part of your estate and therefore cannot be liquidated by bankruptcy trustees to repay debts. This blanket of protection, however, as of 2015 only goes up to $1,245,475.00. The level of protection offered and the value of the account covered can vary from one state to another.
Can I withdraw money or take loans from my 401K while in chapter 7?
Yes, you can, you will have access to those funds and can even take out a 401k loan if you wish to do so, however, caution is needed in this regard. These funds are only safe from a bankruptcy trustee if;
• They were still in your 401k account at the time that you filed your case.
• The amount taken does not exceed the exemption limit of $1,245,475.00.
Can creditors garnish my pension payments?
For most creditors your retirement income is off limits, however, IRA and Social Security payments can be garnished to satisfy federal debts. Federal debts include back taxes owed to the IRS and child support. It can also include things such as federal student loans.
What steps can I take to protect my assets from creditors?
There are a few steps that you can take to protect your assets in the case of a lawsuit or bankruptcy;
• If you own a business, it is paramount that you separate your business assets from your personal ones by utilizing business entities such as sole proprietorship or limited partnership. This will prevent you from losing everything you own should a lawsuit ensue.
• Even though retirement accounts are exempt there are laws in place to ensure you don’t use it as an effort. Only payments made more than 120 days before filing for bankruptcy are exempt so consider moving cash you won’t need immediately into these protected entities.
• Invest in life insurance and annuities. Laws may differ from one state to another; however, these assets retain significant protection and have specific exemptions attached to them.
Are 401ks safer than ROTH and IRAs?
Yes, they are, 401ks fall under the Retirement Income Security Act which has the sole purpose of ensuring employees receive the pension and benefits promised to them and generally have a wider blanket of coverage than individual retirement accounts.
Retirement accounts are a great investment and offer a range of protection in the face of bankruptcy. Keep them well funded so you always have that extra layer of security when you need it.
Seeking advice from an experienced bankruptcy attorney is always wise when you are faced with financial hardships. Handling things on your own only makes it more difficult and confusing. Safeguard your interests and future with a knowledgeable bankruptcy attorney.
The bankruptcy attorneys at Border Law Southfield MI can help. With over 15 years’ experience in all debt relief matters, our knowledge and expertise can alleviate the stress individuals face when filing for personal bankruptcy. As a full-service Bankruptcy Firm, we specialize in Chapter 7, Chapter 11, and Chapter 13. We can help you pave the way for a brighter, secure financial future. Call us today for a Free Case Evaluation!