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Would I Lose My 401(k) if I File Bankruptcy?

Even in times of great economic stress, potential bankruptcy filers may be deterred from seeking bankruptcy protection by worries about the long-term affect bankruptcy might have on their financial wellbeing.

Bankruptcy can wreak havoc on your finances, but if you've been putting away savings into qualified retirement account, the bankruptcy court may protect that nest egg from your creditors.

If you'd like to speak with a bankruptcy lawyer and learn about your rights to your 401(k) if you file bankruptcy, please fill out this form. You can arrange a free, no-obligation consultation today.

Bankruptcy Protects Retirement Funds

The good news is that filing for bankruptcy will likely not cause you to lose your 401(k) funds. Here's a look at why, and at some important financial maneuvers to consider if you think a bankruptcy filing might be in your future.

  • Keeping your retirement funds: Think about it this way: Bankruptcy is the federal government’s way of helping people get out of debt and back on their feet. If the bankruptcy court required filers to drain their retirement funds to repay creditors, that would likely mean that, as soon as bankruptcy filers reached retirement age, they'd need federal financial protection again because they had to give up all the money they'd saved for their future.
  • Specially protected accounts: The bankruptcy court designates certain accounts that cannot be touched during a bankruptcy filing, and the 401(k) is one of them. If you file for Chapter 7 bankruptcy, you may find that many states even allow filers to keep a reasonable amount of money in a regular savings account as well – after all, the goal of bankruptcy is to get people back on their feet financially, and that's hard to do without any money.
  • When to file for bankruptcy: Too many Americans make the mistake of draining their 401(k) accounts in an effort to stave off bankruptcy, not realizing that those funds could have been protected in bankruptcy court. The disastrous consequences of drawing from your retirement funds too early are twofold: first, early withdrawals are heavily taxed, meaning that you cannot access the full value of your money; and second, you cannot get those funds back once they're gone.

What Else Could I Keep when I File for Bankruptcy?

The answer to that depends on your particular situation and which type of bankruptcy protection you choose.

  • Chapter 7 bankruptcy: Each state has a list of exemptions that are protected when a person files for bankruptcy. In most states, the list includes a house or some amount of home equity, a car, clothes, work tools and personal possessions. In addition, the federal government has a list of exemptions (including 401(k) funds) that apply in all states.
  • Chapter 13 bankruptcy: This type of personal bankruptcy typically allows filers to hang on to most or all of their valuable possessions. That's because Chapter 13 filers are required to repay their creditors in whole or part with the help of a modified repayment plan.

Learn More about Your Retirement Funds from a Bankruptcy Lawyer

If you'd like to ask a bankruptcy lawyer directly about what will happen to your 401(k) or other savings accounts if you file bankruptcy, take advantage of this opportunity for a free consultation with a bankruptcy lawyer practicing in your area. Simply fill out the case review form on this page to get started now.


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