Most of us spend decades in the workforce, building our wealth and saving for the day when we get to retire. You may have spent 30, 40, or even 50 years of your life building up your retirement savings to ensure that you can stop working and maintain a comfortable lifestyle for you and possibly your spouse. But what happens when times become difficult and you must file for bankruptcy? Are those same retirement accounts vulnerable for paying off debts? Are they considered an asset? Luckily, in most cases the answer is “no.”
Should you find yourself filing for a Chapter 7 or Chapter 13 bankruptcy, your creditors will not be able to touch most retirement accounts, as they are considered to be exempt assets.
When Are Retirement Accounts Considered to be Exempt?
Under the 11 U.S. Code § 522.(b)(3)(C), retirement and pension accounts are considered to be exempt from creditors pertaining to bankruptcy. Additionally, for those who choose to file Chapter 13 bankruptcy, your retirement savings are not considered to be income, so when you must make payments, they will not be dependent at all upon these savings; you will not be responsible for paying more money because of them. Generally speaking (there are a few exceptions), exempt accounts must be qualified by ERISA. These accounts include:
- Defined Benefit Plans
- IRAs (Roth, SIMPLE, and SEP);
- Money Purchase Plans; and
- Profit-Sharing Plans
Non-ERISA Plans That Are Not Protected
There are also some non-ERISA plans that are protected. However, when your retirement account is not protected, you have an exemption up to $1,283,025 of your total savings. Any excess of this amount can be used to pay back creditors.
Monthly benefits are also considered to be non-exempt. However, bankruptcy courts will only take amounts over what it is that you need to support yourself. Under Chapter 13, these monthly benefits are considered to be income.
Other Exceptions to Exempt Accounts
Other exceptions to the abovementioned exempt retirement accounts include:
- Former spouses may have access to your retirement accounts
- The IRS may be given access to your savings if it has already filed a lien against you
- If you draw money from your retirement plan prematurely then it is no longer considered to be protected.
What Should You Do if You Must File for Bankruptcy?
Filing for bankruptcy is a big decision and should not be taken lightly. If you have a decent amount of money saved up in your retirement accounts, it is important to consider all of the potential consequences of doing so. In order to understand your options, it is important to consult with a bankruptcy attorney in order to ensure that you are adequately protecting your hard-earned savings. Our attorneys at Miami Valley Bankruptcy will work with you to help you do just that. To protect your assets, call our office today.