One of the main drivers of individuals filing for bankruptcy is to protect their financial future. So, it comes as no surprise that if you find yourself considering bankruptcy, you may have concerns over whether your retirement accounts are safe when filing. Whether you have a 401(k), a pension plan, an IRA, or a 403(b), we are here to put your mind at ease and explain what you can expect to happen to your retirement plan when you file for bankruptcy.
Federal Protection for Your Retirement Accounts
You will be happy to know that under federal bankruptcy law, most tax-exempt retirement accounts are protected from creditors in bankruptcy proceedings. This includes the following account types:
401(k) Plans: These employer-sponsored retirement savings plans are fully protected under federal law. This means your 401(k) balance remains intact and out of reach from creditors during bankruptcy proceedings.
403(b) Plans: Similar to 401(k) plans but typically offered by public schools and certain non-profit organizations, 403(b) accounts also enjoy full protection under federal bankruptcy laws.
IRAs: Both traditional and Roth IRAs have substantial protection under federal law, though the protection is capped at a certain amount (currently over $1 million). As of 2022, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 protects up to $1,512,350. The protection limit is changed every three years. If you have more than the current limit in your IRA, courts have the ability to up the protection limit depending on your circumstances.
Pension Plans: If you have a pension plan, it’s generally protected under the Employee Retirement Income Security Act (ERISA), ensuring your benefits are safe during bankruptcy.
State Bankruptcy Exemptions
In addition to the protections you will receive under federal bankruptcy law, many states also offer protection through exemptions. In Maryland, ERISA-qualified benefits, IRAs, and State employees’ retirement accounts can receive exemptions.
Withdrawing Funds from your Accounts
If you take money out of a retirement account, this will be considered income for bankruptcy purposes. It may affect your ability to pass a means test, and, it may be accessible to the bankruptcy trustee if you do not need them for your basic necessities.
Protecting Your Retirement is Important
Your retirement accounts are a form of financial security for the future. Losing your retirement accounts in any way can put your golden years of peace in great jeopardy. That is why the protections are in place during bankruptcy proceedings.
Steps to Take if You’re Considering Bankruptcy
Inventory Your Assets: Before filing for bankruptcy, make a comprehensive list of your assets, including your retirement accounts. Understanding what you have can help you make informed decisions.
Understand Your Exemptions: Research both federal and state exemptions to know how your retirement accounts will be protected. This knowledge can provide peace of mind and clarity as you move forward.
Seek Professional Guidance: Navigating the complexities of bankruptcy laws and exemptions can be overwhelming. This is where the expertise of a bankruptcy lawyer becomes invaluable.
The Importance of Consulting a Bankruptcy Lawyer
While it’s reassuring to know that your retirement accounts are generally protected under federal and state laws, navigating the complexities of bankruptcy can still be daunting. However, it’s important to note that while protections exist, they are not guaranteed. Consulting with a lawyer that specializes in bankruptcy is crucial in helping you try to protect your assets to the fullest extent possible. A lawyer can help you understand the specific exemptions available in your state, guide you through the filing process, and develop a strategy that maximizes your financial protection.
If you are in need of a bankruptcy lawyer in Maryland, Adam M. Freiman is here to help! Adam has been practicing law for over 25 years and has the experience and knowledge to guide you through every step of the bankruptcy process, doing everything possible to help protect your assets, including your retirement accounts.
If you are considering filing for bankruptcy, contact our offices today to find out more about how Adam can help you!
