Retirement Plans and Bankruptcy

: Reese Baker & Associates

  Filed under: Money Management

Protecting your retirement accounts in difficult financial times can be hard to do. You may find yourself behind in your mortgage and worry you will lose your home unless you liquidate your retirement account and catch up on our debt. The problem with this is now you have set yourself up for financial hardship in the future when you are unable to work and provide a steady source of income for you or your family. Bankruptcy may be your answer to keep both.

In most cases, you can keep your retirement accounts such as IRA’s and 401ks when you file for bankruptcy. Federal law may cap the amount depending on the type of IRA you have. Traditional IRA’s and Roth IRA’s are protected to a value of $1,283.025 with an increase every three years.

BAPCPA

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 mandates that many types of retirement plans are exempt assets in the bankruptcy process.

When are IRA’s not Protected

When you withdraw funds from your retirement account, it is no longer protected by bankruptcy laws. Divorcing spouses may also have a claim to your retirement account. If the IRA has a valid tax lien, they might be able to access your retirement account.

Keep your money in the retirement account since most retirement plans are protected from your creditors. It is a mistake to take cash out of your IRA to pay on debt that can be eliminated in bankruptcy.

Consider talking to a Rio Grande bankruptcy attorney to get you through the tough times by liquidating your debt and holding on to your retirement savings.