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Retirement funds are protected from the bankruptcy estate

Many consumers in Florida and elsewhere find it difficult to consider filing for bankruptcy relief. Most who face the issue are hard-working persons who are used to paying for their debts in a timely manner. The hard facts, however, do sometimes dictate that the strongest remedy be employed for the sake of economic survival of oneself and one's family. When compared with other remedies, there is no doubt that the bankruptcy alternative is the most effective way for those who have overwhelming debt to obtain a fresh start.

Consumers considering bankruptcy are often concerned about their retirement funds. Fortunately, in most cases the Bankruptcy Code prohibits those funds from being included in the bankruptcy estate. The Supreme Court has made it clear that 401(k) retirement plans qualified under the Employee Retirement Income Security Act, commonly referred to as ERISA, are protected assets that are exempt from seizure by the bankruptcy trustee.

Assets held in any tax-deferred retirement plan are also exempt from the bankruptcy estate. This includes traditional and Roth IRAs. However, note that if you make withdrawals from these plans during the bankruptcy, the withdrawn funds lose their protection. Also, the exemption in bankruptcy for IRAs is capped at just under $1.3 million, which is adjusted on a three-year basis for inflation.

Most pension plans are also exempt, but there are exceptions. These are the kinds of questions that can be cleared up when the consumer takes advantage of having a free consultation with an experienced bankruptcy attorney. There is no substitute for getting all of the facts straight in one's mind. The attorney will advise whether the individual or married couple are qualified to file under the bankruptcy laws, and what will be the treatment of their assets under the laws of Florida and the federal bankruptcy laws.

Source: fool.com, "Can Creditors Seize My Investments During Bankruptcy?", Sarah Szczypinski, July 19, 2017

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