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Will I Lose My Retirement Accounts
If I File for Bankruptcy?

Oliva Law Bankruptcy April 15, 2022

If you are considering filing for bankruptcy, one of the things you may be worried about is whether or not you will lose your retirement accounts once you file. For the vast majority of people, their retirement savings are years and decades of hard work. Obviously, you want to protect the money in your retirement accounts when exploring your debt relief options.

At Oliva Law Bankruptcy, our bankruptcy attorney can analyze your specific situation and help you understand your options for protecting your hard-earned retirement savings. We understand that you want to keep all of your assets as much as possible when filing for bankruptcy. We provide legal guidance to debtors in McAllen, Texas, and throughout the state, including Corpus Christi, Harlingen, Brownsville, and Rio Grande Valley.

Retirement Accounts That Are
Under Protection in Bankruptcy

Most of the time, people who file for Chapter 7 or Chapter 13 bankruptcy can keep their pension and retirement accounts. However, there may be exceptions to the general rule. In many cases, whether or not you will lose money in your bank or retirement accounts comes down to where the funds came from, among other factors.

Whether or not a retirement account is protected in bankruptcy depends on its qualification under the Employee Retirement Income Security Act of 1974, known as ERISA. ERISA is a federal law that intends to protect participants on private employer-sponsored retirement and health coverage plans. Almost all ERISA-qualified retirement accounts are exempt from creditors, though there may be some exceptions.

When filing for Chapter 7 bankruptcy, your retirement accounts are safe even though filing under this chapter involves a liquidation of most of your assets. You cannot lose your retirement accounts because of protections under federal and state law. The same can be said about filing for Chapter 13 bankruptcy. Debtors can keep most of their assets, including retirement funds.

The retirement fund exemptions have unlimited amounts, which means the entire amount of the account is under protection. Retirement and pension plans protected under the exemption include 401(k)s, IRAs, profit-sharing plans, and others. Typically, savings and investment accounts are not under protection when you file for bankruptcy unless those accounts are ERISA-qualified plans.

Situations in Which Retirement Accounts May Not Be Under Protection

Since federal law protects most of your retirement accounts when you file for bankruptcy, the best thing you can do to avoid losing your retirement savings is to preserve the money in your retirement funds. Below are the reasons why you should not touch your retirement funds if you are considering filing for bankruptcy:

  • By cashing out your 401(k), you could face penalties for early withdrawal;

  • The money in the 401(k) account could lose the retirement fund exemption status once you transfer them into another account; and

  • A bankruptcy trustee could accuse you of committing fraud if you transfer funds into your 401(k) account before filing for bankruptcy.

Many other situations may cause your retirement accounts to lose their retirement fund exemption status when filing for bankruptcy. You must contact a knowledgeable bankruptcy attorney to determine what you can do in your specific situation to protect your retirement accounts.

Retirement Benefits Being Paid as Income

You may have additional concerns if you receive income from your retirement accounts. If you have retirement benefits being paid as income, you must speak with an attorney to determine your eligibility for filing for bankruptcy. Your retirement income is taken into account whether you file for bankruptcy under Chapter 7 or Chapter 13. Keep in mind that retirement income and Social Security income are not the same things in the eyes of the law. Unlike a debtor’s retirement income, their Social Security benefits are not taken into consideration when using the means test.

Protect Your Future – Call
Oliva Law Bankruptcy Now

Our skilled bankruptcy attorney at Oliva Law Bankruptcy assists debtors in McAllen, Corpus Christi, Harlingen, Brownsville, and throughout Rio Grande Valley, Texas, to help them get out from under a crushing debt load. We provide legal counsel and help clients understand their debt relief options. If you are considering filing for Chapter 7 or Chapter 13 bankruptcy but are worried about losing your retirement accounts, get a case review with our attorney today.