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For most of us, we spend years of our lives saving for our retirement. For some, that means 30, 40, or even 50 years in the workplace making sacrifices so that when the day came we would be able to live out the remainder of our lives comfortably. But sometimes our finances can take a major hit and we are left with the difficult decision to file for bankruptcy. Does this mean that our hard-earned retirement savings are now accessible to creditors looking to receive compensation for your debts? In other words, are your retirement accounts considered an asset? Luckily for us, the answer is usually no.
Most Retirement Accounts Considered “Exempt Assets”
If you file for Chapter 7 or Chapter 13 bankruptcy, most retirement accounts will be considered “exempt assets” and, therefore, untouchable to creditors. Under 11 U.S. Code § 522.(b)(3)(C), both retirement and pension accounts are exempt from creditors when it comes to bankruptcy. Also, if you file for Chapter 13 bankruptcy, retirement savings are not considered income, so your payments are not dependent upon these savings.
In other words, your retirement savings will not cost you more money. However, in order for your retirement account to be considered exempt, it must be qualified by the Employee Retirement Income Security Act of 1974 (ERISA). Such accounts include:
- IRAs (Roth, SIMPLE, and SEP);
- 401(k)s;
- 403(b)s;
- Defined Benefit Plans;
- Money Purchase Plans;
- Profit-Sharing Plans; and
- Keoghs.
Non-ERISA Plans
There are still some exceptions to the requirement that your retirement account must be considered exempt by ERISA. There are some non-ERISA plans that are still protected. If however, your retirement account isn’t protected, you will still have an exemption of up to $1,283,025. This means that up to this amount of money is protected from creditors. But any amount over this is not and can be used to pay them back.
Monthly benefits are considered to be non-exempt as well. Fortunately though, bankruptcy courts only take an amount over what is needed for you to support yourself. It is important to note that under Chapter 13 these monthly benefits are considered as income.
Additional Exceptions to Exempt Amounts
There are additional exceptions to the exempt retirement accounts as listed above. Such exceptions include the following:
- Your former spouses may be able to access your retirement accounts;
- The IRS may be allowed access to your savings if it has already filed a lien against you; and
- If you draw money from your retirement plan prematurely then it is no longer protected
Toronjo & Prosser Law Helps Those Who Are Dealing with Bankruptcy
It’s undoubtedly stressful to realize that you don’t have enough money, and even more stressful when you realize that filing for bankruptcy may be your best option. That’s why it’s so important to consult with a knowledgeable and experienced Dallas bankruptcy attorney. At Toronjo & Prosser, our qualified Texas Bankruptcy Attorneys can help you to navigate the process. To learn more or to schedule a free consultation contact us online or call us today!