With the economy still struggling, many people are now finding themselves deeply in debt as they get older and inch closer to retirement. Many older people are often concerned about how filing for bankruptcy later in life could affect them. While filing for bankruptcy at an older age may affect your ability to borrow money at preferential interest rates, the good news is that generally speaking it should not affect your retirement savings.
How 401ks, IRAs and Pension Plans are Affected by Bankruptcy
Whether you file for Chapter 7 or Chapter 13 bankruptcy, the retirement accounts that most workers use, such as 401ks, 304bs, and IRAs are exempt from the bankruptcy estate. ERISA-qualified pension plans are also exempt from the estate. There is generally no limit on how much money in these accounts is exempt from bankruptcy, except for traditional and Roth IRAs, which are limited to an exemption of $1,245,475 per person.
What this means is that when a trustee is appointed to your case and reviews your assets, these retirement accounts are not included in property that can be liquidated to pay creditors in Chapter 7 bankruptcy, or included as part of a repayment plan in Chapter 13 bankruptcy. It is important to note that whatever retirement account you are using, it must be a legitimate plan. You cannot merely label a savings account a 401k and expect it to be exempt from the bankruptcy estate.
What About Using a 401K to Pay Creditors?
As 401ks and other retirement plans are typically one of the largest assets that many people hold, it can be tempting to borrow from this account to pay off debts. This is the last thing that you want to do if you are considering filing for Chapter 7 or Chapter 13 bankruptcy and have debts that are likely to be reduced or discharged in these proceedings.
While money held in 401k or other retirement plans is exempt from the bankruptcy estate, this is only true so long as that money is held in the account. If you borrow a large amount of money from your 401k and hold it in a checking account, then file for bankruptcy, the trustee could decide that this money now needs to be used to pay off creditors instead. If you take the money out to pay creditors before filing for bankruptcy, you will still owe a large amount of money back to your retirement account, and this debt will not be discharged in either Chapter 7 or Chapter 13 bankruptcy.
Contact a Bankruptcy Attorney
An experienced bankruptcy attorney can help ensure your retirement accounts are protected from creditors. The Law Offices of Melanie Tavare of Oakland and Union City can guide you through the bankruptcy process whether you file for Chapter 7 or Chapter 13 bankruptcy. Contact the Law Offices of Melanie Tavare on our website or by calling 510-255-4636.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
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