Retirement Accounts and Chapter 13 Bankruptcy
Contributing to a retirement account such as a 401 (k) during Chapter 13 bankruptcy continues to be a challenging topic in federal court. There was a recent ruling by the Bankruptcy Appellate Panel of the 9th Circuit that ruled debtors cease voluntary contributions during their Chapter 13 repayment period. Yet, it is possible you may still continue contributing depending on your state or jurisdiction.
During Chapter 13 bankruptcy funds are allocated to repaying debt obligations based on income ability. The plan allows debtors to repay debt within a 3 to 5 year period. People commonly make voluntary contributions to their retirement account via payroll deduction. Upon finalizing your Chapter 13 plan the court may request that for the duration of the repayment period, all payments toward your retirement plan be put toward debt obligations. Yet this may not always be the case. Some courts may allow you to continue making contributions to your retirement account if you are close to retirement age.
What if you withdrew funds from your retirement account for a loan? If you borrowed funds from your retirement account and you have begun making payments to repay the loan, you can still continue making those payments under Chapter 13. Any existing retirement funds in place before your bankruptcy was filed are likely protected through state or federal exemptions, whether you file Chapter 13 or Chapter 7 bankruptcy . Contact your bankruptcy attorney if you have questions or concerns about your retirement account.