Are Your Retirement Savings Bankruptcy-Proof?

You do not have to be destitute to file for bankruptcy protection. In fact, one could even argue convincingly that bankruptcy cases work better when you have substantial assets. This is why you see wealthy business owners run up lots of debts with their failed marriages and failed business ventures, discharge those debts in bankruptcy court, and then start over again. In fact, chapter 13 bankruptcy only works if you have enough assets that the bankruptcy court could liquidate them if it needed to and enough income to protect your non-exempt assets from becoming vulnerable to liquidation. 

There are plenty of people who would love to file for bankruptcy, but they cannot because they do not have enough money; by contrast, having too much money has never stopped anyone from filing for bankruptcy, except in the case of people who did some calculations and realized that they would be able to repay or renegotiate their debts without a bankruptcy filing. If you have substantial assets, including employer-provided retirement accounts, but you are struggling with debts and considering filing for bankruptcy, contact an Oakland lawsuits, collections, and creditor harassment lawyer.

How Much Asset Protection Do You Get From Retirement Accounts in California?

The Employee Retirement Income Security Act (ERISA) of 1974 is a federal law that protects retirement pensions and employer-provided benefits, such as health savings accounts and employer-provided retirement accounts, from creditor claims. If you file for bankruptcy or are a defendant in a debt collection lawsuit, the court cannot order you to pay your creditors out of these accounts or garnish these accounts for the benefit of creditors. 401(k)s are covered under ERISA, but IRAs, Roth IRAS, and Simple IRAs are not.

California law offers additional protection beyond what you get at the federal level. If you file for bankruptcy, the first million of your IRA is safe from creditors. In any other debt collection lawsuit, the court can decide how much you need to support yourself and your dependents in retirement, let you keep that much, and order you to pay the rest to creditors.

Yes, it is better than the court simply offering your entire life’s savings to creditors, but the thought of some of your retirement savings being vulnerable to garnishment if you suffer a financial hardship is not a pleasant one. The best thing you can do to protect your retirement savings from creditors is to address your debts sooner rather than later while you are still in the workforce. If you have a salaried job, then chances are that you will be able to qualify for Chapter 13 bankruptcy, which does not involve liquidation of any of your assets. This way, after you finish your Chapter 13 repayment plan, you can retire with your retirement savings undisturbed.

Contact the Law Office of Melanie Tavare About Taking Charge of Your Debt Before Retirement

A debt relief lawyer can help you if you are struggling with debts as you approach retirement age. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a case evaluation.