How Bankruptcy Affects Your Retirement Accounts

When involved in personal bankruptcy, the feeling of knowing your assets may not be secure can cause anxiety. While many of us primarily think of our assets as material items including our home, car and personal belongings, one thing that is often overlooked is retirement accounts. While laws vary from state to state, there are certain protections that prevent creditors from coming after your retirement accounts to help alleviate debts during the bankruptcy process. Here, the Baltimore bankruptcy attorneys at Grossbart, Portney & Rosenberg, P.A. discuss how these protections can ensure your retirement savings remain unharmed, and the benefits of seeking professional counsel to help protect your finances. 

ERISA-Qualified Retirement Plans Are Safe Under Federal Law

ERISA, or the Employee Retirement Income Security Act of 1974, is a federal law that sets minimum standards for pension plans, and is associated with employee benefit plans. If your retirement account is ERISA-qualified, it is not considered property that can be taken by your bankruptcy trustee to pay back your debts. Wondering what ERISA-qualified retirement accounts are? ERISA-qualified accounts must be employer-sponsored, and plan contributions must be tax-deductible. Generally speaking, these plans will include 401(k)s, 403(b) profit sharing plans and 457(b) deferred compensation plans. While solo 401(k) plans are not covered under ERISA, they receive full bankruptcy protection under the national bankruptcy code. If you are on the verge of declaring bankruptcy, be sure to look into your retirement accounts through your employer, and speak with a qualified professional such as the bankruptcy attorneys at Grossbart, Portney & Rosenberg to ensure your accounts will not be touched after you choose to file for Chapter 7 or Chapter 13 bankruptcy. 

Research Your IRA Options When Considering Filing for Bankruptcy

While there are some similarities between ERISA-qualified plans and IRAs, there are some stark differences to be aware of when considering bankruptcy. Traditional IRAs and Roth IRAs currently have a protection limit of $1,362,800, and these limits change each year based on inflation. However, a rollover plan from an ERISA-qualified account is not subject to these limits, and will be protected no matter the amount in that account. One concern regarding IRAs that are not present in ERISA-qualified plans is in relation to non-bankruptcy protection. If you lose a legal battle, your IRA account is not under the same federal protection as an ERISA-qualified plan, and it is ultimately up to each state to determine the protection awarded. Finally, inherited IRAs are not covered under bankruptcy protection, and could be taken by your bankruptcy trustee if needed to pay back debts.

Understand Various Exemptions from Retirement Account Protection 

ERISA-qualified plans and IRAs do have many federal and state protections to make sure that money can’t be touched in the event of bankruptcy, however, there are certain exceptions that you should be aware of before moving forward in the bankruptcy process. One of the largest exceptions to protection relates to “qualified” accounts. When the entirety of your retirement funds remain in the accounts stated above, they will be protected. However, as soon as you remove funds from these accounts, they are no longer considered “qualified” and can be claimed by your bankruptcy trustee. 

Seek Additional Help With Bankruptcy Attorneys at Grossbart, Portney & Rosenberg, P.A. 

The bankruptcy process is overwhelming, and when complex finances such as your retirement accounts are involved, seeking the help of professionals is extremely beneficial. Bankruptcy attorneys such as those at Grossbart, Portney & Rosenberg, P.A. have decades of experience navigating the many intricacies of bankruptcy, and how it affects every aspect of your life. It is our job to keep you abreast of every decision being made, and create a comprehensive strategy to help you achieve financial freedom as soon as possible. To learn more about our team and see how we can guide you through the bankruptcy process, contact our Baltimore office by clicking here