Retirement accounts, 401(K)’s and how they are handled in a bankruptcy case

Retirement savings accounts such as IRA’s, 401(K) accounts, and most private and government retirement plans have a special place in the bankruptcy code.

In most instances, the balances in these accounts are fully protected, meaning that the consumer debtor can keep the entire account even after a bankruptcy filing.

This is because of a Supreme Court ruling several years back that says that properly qualified retirement accounts are not even part of a debtor’s bankruptcy estate.

The “bankruptcy estate” typically consists of all the property a debtor owns — outright, or in “partnership” with a bank or other secured lender — on the day the case is filed.

By keeping retirement savings accounts outside of the bankruptcy estate, debtors do not have to use up their precious allotment of exemptions to protect them. They are already fully protected!

This is a great relief to debtors who have worked steadily before some circumstance forced them to consider filing bankruptcy, as well as debtors who may be nearing retirement age.

If you are thinking about maybe filing for bankruptcy and have questions about whether your IRA, 401(k), or pension will be protected if you do file, you can give me a call.


By Doug Beaton

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