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Bankruptcy Law Blog

Tuesday, August 13, 2019

Will Filing For Bankruptcy Ruin My Retirement?

Gone are the days when people worked for the same company for 30 years and retired with a generous pension. Today, most people count on Social Security and a self-funded IRA or 401K account to make it through their Golden Years. This leaves many people who are in dire financial straits wondering what will happen to the money they have worked so hard to save up if they file for bankruptcy. Can you keep it? Or will the bankruptcy court force you to use your nest egg to pay off your creditors? 

The answer is every lawyer’s favorite answer — it depends. Whether the money you are counting on for your retirement is safe, or will be used to pay off your creditors, depends on the type of account the money is in, and the amount of money you have saved up. 

Stocks, Bonds & Bank Accounts 

Unless you use up your exemptions to save it, the court can use the money that you are holding in checking and savings accounts, investment accounts, and stock option plans to pay off your creditors. 

Retirement Accounts 

On the other hand, virtually all ERISA-qualified retirement accounts and pension plan funds are protected by law from being taken over by the bankruptcy court. This includes:

  • 401(k)s
  • 403(b)s
  • IRAs 
  • Keoghs
  • profit-sharing plans
  • money purchase plans
  • defined-benefit plans

However, any money you have taken out of these accounts, or received as a monthly payout, can be used by the bankruptcy court to pay off your creditors. This is one of the reasons why financial advisers encourage you to leave your retirement accounts untouched, even when you are in financial trouble. 

It is important to note that there is a bit of an exception for money held in traditional and Roth IRAs. The law allows the courts to use the money held in those types of accounts to pay off creditors if you have over $1,362,800 in your retirement accounts. And this means accounts of any type, not just IRAs. Anything over this amount, which is adjusted for inflation every few years, can be taken by the bankruptcy court and used to pay back your creditors. 

Social Security 

Contrast this with the money you get from Social Security. Even though it looks a lot like income, as long as it is kept in a separate account and not mixed with money that the court can get its hands on, you should be able to save payments you have received from Social Security from the bankruptcy court. 

Paying For Help Will Pay Off

The different ways various assets are treated is one of the reasons why it is important to work with an experienced attorney if you are considering filing for bankruptcy. An attorney will shepherd you through the process and ensure you come out the other side in the best financial shape possible.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”