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Will My 401 (k) Be Protected in Bankruptcy?

Posted By Allmand Law Firm, PLLC || 26-Jun-2013

401(k) and Bankruptcy

Many who file for bankruptcy qualify for protection of their 401(k), while being able to discharge or eliminate debt. This is common concern debtors have for a number of reasons. Some who are thinking about filing may receive funds from their 401(k) as their only form of income, especially if they are retired. Some may be struggling to pay bills such as credit card and medical bills, and feel retirement accounts such as a 401(k) is their only asset and would hate to see that go to creditors.

When you file for bankruptcy many retirement accounts qualify for protection from creditors. Because these funds are already designated for a specific purpose (retirement), they are usually off limits to creditors. Yet, if you decide to pull the funds for another reason, they may not be eligible for protection under bankruptcy, depending on when the funds were pulled and for what purpose.

Another aspect to consider is the timing of your bankruptcy filing. Some may think about seeking protection if they lost their job and are considering pulling out funds from their 401(k) for living expenses. You may feel you would need to move your 401(k) funds to another account in order to protect them from creditors. In most cases this is unnecessary.

In some states you may obtain protection based on the exemptions available. When you are able to protect your funds this means you get to keep every last penny from creditors. This is also true even if you have a considerable amount of debt.


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