Bankruptcy and Your Retirement Account
People who are in a financial situation where bankruptcy is a possible solution should learn the facts about how their retirement funds will be treated. Knowing how your retirement accounts will be treated in a bankruptcy may be all the information you need to make that decision of whether to file for bankruptcy or not.
Most IRAs, or individual retirement accounts, are protected from bankruptcy seizure. The following savings accounts cannot be liquidated to pay your debts. Your 401K and 403B plans, Keoghs, profit sharing, Roth, SEP, SIMPLE and ERISA funds. Other funds may also be protected, so if you have any concerns about your specific retirement funds it’s best to speak with an experienced bankruptcy attorney to review your case individually.
The one time this money is not protected is if the total amount of these savings are worth more than $1,095,000 in which case your bankruptcy trustee may decide to take some of that to pay your debtors.
Not only is it important to know this information before you file for bankruptcy, so you feel more secure about your future, but it’s vital that you do not cash in your retirement funds to pay for debts. Even if you cash in those funds but don’t use them to pay for debts they’re no longer protected and all of it can be seized by your bankruptcy attorney to pay off your debtors.
Also, if you know you’re in financial trouble and try to hide some of your assets in an IRA the bankruptcy trustee may see through your ruse and reclaim those assets. They can review your financial transactions for the previous six months after filing bankruptcy to make sure there is no deceit involved.