Employee Benefits in Bankruptcy
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Employee Benefits in Bankruptcy

Protect Your 401k, IRA, and Pension from Creditors

Deep in debt and worried about your retirement nest egg? Talk to a bankruptcy attorney about dealing with your debt.

A bankruptcy attorney in your area can explain state and local laws that can help you make sense of your financial situation, and can help you determine if filing bankruptcy is the right course of action.

Fill out our case review form today to connect with a bankruptcy attorney for a free, no-obligation case evaluation.

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Bankruptcy and Retirement FAQs

Will I lose my retirement savings if I file bankruptcy?

In most cases, no, you should be able to keep your retirement savings after filing bankruptcy. The 2005 bankruptcy law made it clear that qualified retirement savings accounts are exempt from creditors in bankruptcy. If your retirement is in an ERISA qualified account (such as an IRA, 401k, or pension plan), it should still be available to you after filing bankruptcy.

However, there are situations where you may lose a portion of your savings:

  • If your "retirement" savings is in a regular savings account, it may be partially seized by the bankruptcy court.
  • If your 401(k) is valued at more than $1 million, any excess over the $1 million mark may be taken by the bankruptcy court.
  • If you have already taken money out of your retirement savings, that money cannot be returned by the bankruptcy court.

What types of accounts are protected in bankruptcy?

Typically, any account that has a special tax status is protected in bankruptcy. These include:

  • Individual Retirement Account (IRA)
  • Roth IRA
  • 401(k)
  • 403(b)
  • Most pensions
  • Keough plans

Should I use my retirement savings to pay down debt?

In most cases, taking money out of your retirement accounts to pay creditors can be a double whammy.

First of all, taking money out of your account can leave you with even less money than you may realize—there may be additional taxes, fees an penalties in addition to the amount you withdraw. Even if you think you're leaving a "safety net" in your account, that could disappear.

Secondly, due to the way most retirement accounts are designed to grow, even a small withdrawal could significantly impact the available funds for your retirement years. This is especially true if you are nearing retirement and won't have much time to refill your account.

Thirdly, and most importantly, unless you have enough in your retirement account to eliminate all of your debt obligations, you may end up depleting your retirement savings for nothing. If there are still debts haunting you, you may only postpone your bankruptcy filing—and leave yourself with nothing for your future.

Instead, by turning to bankruptcy first, you may be able to eliminate your debts and leave yourself with your full retirement savings plan for a secured future.


Can I file bankruptcy if I'm living off of Social Security?

In many cases, yes. Social Security payments may be 100% exempt from creditors in a bankruptcy filing depending on your circumstances. Unless there is some other reason that you are not eligible for bankruptcy (such as a recent filing that was dismissed by the courts), receiving Social Security payments should not keep you from seeking bankruptcy relief.

Are retirement plan loans discharged in bankruptcy?

Most retirement plans allow you to "borrow" money to pay for certain investments—similar to how mortgages allow you to borrow against equity to fund home improvements.

These retirement plan loans are considered a debt to be listed on your bankruptcy petition. But can they be discharged in bankruptcy? Like most things related to bankruptcy, it depends.

If you file Chapter 7 bankruptcy, these loans cannot be discharged.

If you file Chapter 13 bankruptcy, these loans will be included in your repayment plan. Any amount that is not repaid at the completion of your three-to-five year plan will typically be discharged.

Can I continue paying into my retirement account during bankruptcy?

In a Chapter 13 bankruptcy case, the court creates a three-to-five year debt repayment plan based on your income and your necessary expenses. Typically, deductions to fund a retirement plan may not be considered "necessary," and would need to stop during your Chapter 13 plan, with the funds going to creditors.

However, this is not always the case. The court may determine that money for your retirement years is necessary, especially if you are nearing retirement age and/or have only minimal savings for your retirement years.

Talk to a bankruptcy attorney in your area about your retirement-related questions. Get started today—fill out the below form or call 877-349-1309 to connect with a local bankruptcy lawyer for a free, no-obligation consultation.

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