Some property is vulnerable to liquidation in bankruptcy. When people pursue a Chapter 7 filing, the trustee overseeing their case might require the liquidation of certain assets to repay creditors at least partially before proceeding with the discharge.
Some property is eligible for exemptions, meaning that people can protect those resources from liquidation. Assets with more value tend to demand immediate attention when people consider bankruptcy.
Most people try to put aside at least a million dollars for retirement, which may make their savings one of their most valuable resources. Are retirement savings accounts exempt during bankruptcy?
Some accounts may be fully exempt
Federal statutes protect certain types of retirement savings accounts from creditor claims, including liquidation demands during Chapter 7 bankruptcy. Any pension or account subject to the rules established in the Employee Retirement Income Security Act (ERISA) has protection from liquidation as exempt property. 401(k)s and similar accounts are typically exempt as well. IRAs may be partially exempt, up to a federal limit that shifts every few years based on inflation and other economic factors.
Those who use traditional savings accounts or investments to set funds aside for retirement or generate revenue may not be able to exempt those assets. The more that people have saved for retirement, the more important it may be to discuss their accounts when they decide on the type of bankruptcy they intend to pursue.
For those filing Chapter 7 bankruptcy, ensuring the exempt status of retirement funds is often critical to their future financial stability. Working with a bankruptcy attorney can help people choose the right type of bankruptcy and optimize the resources that they can exempt when they file.
