How Does Filing for Bankruptcy Affect Retirement Savings?

 Posted on April 14, 2022 in Bankruptcy

When a person or family has large debts that they are struggling to repay, there are multiple options for relief. In many cases, bankruptcy can provide the best way to eliminate crushing debts. Depending on the type of bankruptcy pursued, a debtor may be required to turn over certain assets, which will be liquidated in order to repay some of the debts owed to different creditors. If a person has a retirement savings account or other types of assets that they expect to use to provide for their needs after they retire, they may be concerned about whether they will be able to maintain ownership of what they have saved or whether their accounts will be seized during the bankruptcy process.

Addressing ERISA Plans and Other Retirement Assets in Bankruptcy Cases

In a Chapter 7 bankruptcy, which is also known as a “liquidation bankruptcy,“ certain assets owned by a debtor may be seized by the bankruptcy trustee. In a Chapter 13 bankruptcy, a debtor usually will not be required to turn over their assets, but they will be required to make payments to creditors over a period of three to five years, and the amount creditors receive through this repayment plan must be at least as much as what they would have received if a person’s assets were liquidated in a Chapter 7 case.

The assets that will be considered during bankruptcy are known as the bankruptcy estate. The U.S.Bankruptcy Code states that employee benefit plans that are covered by the Employee Retirement Income Security Act (ERISA) may not be included in the bankruptcy estate. These include employer-sponsored retirement savings accounts such as 401Ks. Deferred compensation plans such as pensions and tax-deferred annuities will also not be considered when determining the value of a debtor’s assets that may be liquidated during bankruptcy.

Debtors may also have retirement assets that are not covered by ERISA, such as individual retirement accounts (IRAs). However, even if these accounts are included in the bankruptcy estate, they will typically be exempt from liquidation. Both the federal bankruptcy statutes and state laws that specify bankruptcy exemptions for state residents exclude retirement funds from being liquidated in a Chapter 7 bankruptcy or being included among a debtor’s assets in a Chapter 13 bankruptcy. This means that debtors who own retirement assets will usually be able to keep these assets when they file for bankruptcy, ensuring that they will have access to financial resources when needed in the future.

Contact Our New Braunfels Bankruptcy and Retirement Assets Lawyer

If you have questions about how filing for bankruptcy will affect your retirement savings and other assets you own, the Law Offices of Chance M. McGhee can explain how the bankruptcy laws apply in your situation, and we can advise you on the best steps you can take to protect your financial interests as you pursue debt relief options. Contact our San Antonio bankruptcy and asset protection attorney at 210-342-3400 to arrange a free and confidential consultation and learn more about how bankruptcy can help you address your debts.

Sources:

https://www.law.cornell.edu/uscode/text/11/541

https://www.law.cornell.edu/uscode/text/11/522