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Will I Lose My Retirement If I File For Bankruptcy?

Retirees may be hesitant to file bankruptcy for fear that they will lose their retirement funds. Luckily, under federal law established in 2005, anyone who files Chapter 7 or Chapter 13 bankruptcy will be able to keep his or her pension and retirement plan funds. However, there are a few limitations to this rule.

Why Can I Exempt My Retirement Account?

The law allows those who file for bankruptcy under Chapters 7 or 13 to exempt their pension or retirement accounts, which means creditors cannot get their hands on them in the case of bankruptcy and debt collection. Plans covered by this exemption include 401(k)s, 403(b)s, IRAs, Keoghs, profit-sharing plans, money purchase plans, and defined benefit plans. The monetary exemption amount is unlimited, with the law protecting the full amount of the retirement account. Thus, when you are ready to retire you will still have something to live off of.

What Are the Limitations to This Exemption?

However, there are a few limitations to this rule. Though most retirement accounts are fully covered, traditional and Roth IRAs have a monetary limit. Each person is allowed to exempt up to $1,245,475. However, if the account holds more funds than that, then the excess can be claimed by the bankruptcy court to pay your creditors. Retirement funds that are paid to you as income are also not exempt from bankruptcy. Under Chapter 7, the court cannot take funds that are necessary for your support. However, anything above that amount can be taken. Under Chapter 13, this income is included in your repayment plan and thus determines the amount of debt you must repay.

 What If I Want to Declare Bankruptcy as a Retiree?

Though retirement generally implies financial security, not all seniors are able to stay out of debt. In 2007, seniors represented 7 percent of all bankruptcy filings. According to a 2010 report by John Pottow, a University of Michigan Law School professor, seniors are the fastest growing demographic of bankruptcy filers in the US. Thus, this 7 percent will continue to grow. There are many considerations retirees should make when filing for bankruptcy, including alternatives to bankruptcy that might better fit their unique situations. Seeking the aid of an experienced bankruptcy lawyer, like those at Oswalt Law Firm in Phoenix, Arizona, is one of the best decision you can make in regard to your financial future. With extensive knowledge of state bankruptcy law, Oswalt can help you find the best bankruptcy option or alternative for your individual case.

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