Are you worried that filing for bankruptcy might wipe out your retirement savings? You’re not alone. Many people in Florida avoid bankruptcy because they fear losing the money they’ve saved for their future.
But here’s some good news: retirement accounts enjoy protection from bankruptcy! This means you can get rid of your debts while keeping the money you’ve saved for your retirement years.
How retirement accounts stay protected in bankruptcy
Most retirement accounts remain safe during Chapter 7 bankruptcy thanks to federal and state protections. During bankruptcy proceedings, these protections apply to:
- Employer-sponsored retirement plans like 401(k)s, 403(b)s and pensions
- Traditional IRAs and Roth IRAs (with certain limits)
- Simplified Employee Pension (SEP) IRAs for small business owners and self-employed individuals
- Government retirement benefits, including Social Security
The bankruptcy court cannot make you empty these accounts to pay your debts. This protection helps you solve your current money problems without ruining your future.
Important limits and exceptions to know
While most retirement accounts stay safe, there are a few exceptions. For example, traditional and Roth IRAs have a protection limit of $1,512,350 per person. If you have more than this amount in these accounts, the extra money might go to your creditors.
More importantly, not all savings accounts qualify as “retirement” accounts. The following accounts do not get any protection during bankruptcy:
- Regular investment accounts
- Normal savings accounts
- IRAs inherited from someone else
Additionally, money you recently took out of retirement accounts and put in your bank account loses its protection. If you withdraw funds right before filing for bankruptcy, the court might find this suspicious.
Plan for tomorrow while discharging debts
Your retirement savings represent years of hard work and careful planning. Bankruptcy laws recognize the importance of protecting these funds for your future security—so you don’t have to worry about them if you need to file for Chapter 7 bankruptcy.
Legal protections for retirement accounts allow you to focus on getting debt relief without sacrificing your retirement dreams. Consulting a bankruptcy attorney may help you ensure your retirement accounts receive maximum protection.
