How Bankruptcy Affects Retirement Planning

 Posted on July 28, 2013 in Bankruptcy

When it comes to retirement planning, people face many questions and choices. Some wonder what types of investments are best for them. A popular retirement planning tool is an IRA, which stands for Individual Retirement Account. As the name suggests, it is an investment vehicle designed to ensure income during retirement. They were first introduced in 1974, with the passage of the Employee Retirement Income Security Act (“ERISA”). 26 U.S.C. § 7701(a)(37). Since their creation, Congress has acted to increase the contribution allowed and the protections against creditors.

Congress recognized that people work hard during to build enough savings in their 401(k)s and retirement funds to provide for retirement. As such, they thought it necessary to protect retirement money from creditors in a case of bankruptcy. Yes, persons who file for Chapter 7 or Chapter 13 bankruptcy get to keep their retirement funds.

If a person files for Chapter 7, they will get to keep all of their retirement accounts and pension plans. This includes 401(k)s, IRAs, profit-sharing plans and other investment vehicles that are commonly considered part of retirement planning.

There are some limits, however, and if you are considering bankruptcy you should think about consulting an experienced Texas bankruptcy attorney. For example, the amount that a person can exempt in a Chapter 7 bankruptcy has a ceiling (albeit high). In addition, if a person is getting payments from a traditional or Roth 401(k), a trustee will consider that as income and will attempt to take any amounts above what is considered necessary for a person to live. Fortunately, bankruptcy attorneys are experts at determining exactly how much one needs to live on without cutting it too close. Much depends on individual circumstances.

If you are considering a bankruptcy and are worried about your retirement funds, place contact a Texas bankruptcy attorney who will answer all your questions.