If you are nearing the age of retirement – or have significant assets stashed away in retirement accounts for when that day finally arrives — how would filing a Chapter 7 or Chapter 13 bankruptcy affect your plans for retirement?
The good news is, if you have money in an ERISA-qualified pension plan like a 401(k), 403(b), Roth IRA, SEP IRA, SIMPLE IRA, Keogh, profit-sharing plan, money purchase plan, or defined benefit plan, all of your money held in these plans is exempt from creditors. That means you get to keep it, even if you file for Chapter 7 or Chapter 13 bankruptcy.
The only exceptions to this rule are for traditional and Roth IRAs: the exemption is limited to $1,283,025 per person, so if you have more than that in a traditional or Roth IRA, anything over that amount can be used to pay off creditors. If you have more than one IRA, the exemption applies to the combination of all your IRA accounts — you are not allowed to exempt $1,283,025 for each plan.
You should also know that while the funds in your account are exempt, any income you receive from retirement benefits is not. If you file Chapter 7 bankruptcy and are currently receiving income from retirement benefits, you can keep what is necessary for your own support and the rest will go to pay off debt. If you file Chapter 13 bankruptcy, your paid benefits will be figured into your income when determining your repayment plan.
When it comes to Social Security benefits or disability income, these funds are protected by federal law from creditors. However, since benefits are usually deposited directly into bank accounts, these monies may be susceptible to garnishment — even though banks are supposed to know which funds in an account are federal benefits before garnishing any assets. You can play it safe by having a separate account for your federal benefits.
Figuring out whether to file bankruptcy can be overwhelming. Contact Koenig│Dunne today and schedule your free consultation with one of our experienced bankruptcy attorneys.