Will I Lose My Retirement Savings if I File for Bankruptcy?

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You may be avoiding a bankruptcy filing because you do not want to lose your retirement savings. But by forgoing bankruptcy, you may be forced to use these funds to pay off your debts, anyway. Understandably, you may be confused about what the right move to take is. Read on to discover whether you will lose your retirement savings if you file for bankruptcy and how a seasoned Rockland County bankruptcy attorney from The Law Offices of Allen A. Kolber, Esq. can work to protect you at all costs.

Is it possible to lose my retirement savings if I file for bankruptcy?

The short answer is, no, it is not possible to lose your retirement savings when you file for bankruptcy. More specifically,  all ERISA-qualified retirement accounts and pension plan funds are excluded from bankruptcy.

Will bankruptcy protect my retirement funds?

A common misconception is that using your retirement funds to pay down your debts is less costly than undergoing a bankruptcy proceeding. In reality, withdrawing money from your retirement account may prompt a heft tax penalty if you are under retirement age (i.e., younger than 62) and fail to pay it back.

Meanwhile, with a bankruptcy filing, you will be able to eliminate your unsecured debts. Examples of unsecured debts that are subject to discharge are as follows:

  • Credit card bills.
  • Medical bills.
  • Personal loans.
  • Student loans.

On top of this, with a bankruptcy filing, your retirement savings will be exempted from the reach of creditors. Examples of retirement plans that are subject to exemption are as follows:

  • 401(k) plans.
  • 403(b) plans.
  • Certain IRA plans.
  • Profit-sharing plans.
  • Money purchase plans.
  • Defined-benefit plans.

Therefore, not only will bankruptcy allow you to eliminate a significant amount of debt that is burdening you, but it will preserve your retirement funds in the process.

Is there an exception to this bankruptcy protection?

Though a bankruptcy filing may offer you significant protections, there may be some retirement benefits that are unable to be exempted from creditors.

For example, if you are filing for Chapter 7 bankruptcy, the court will consider your monthly payments from a pension or retirement account as part of your income and therefore will incorporate it into your Chapter 7 means test qualification. And if you are filing for Chapter 13 bankruptcy, the court will use your monthly payments from a pension or retirement account to determine what portion of your unsecured debts to incorporate into your Chapter 13 repayment plan.

The bottom line is that, if you are undergoing a great deal of financial distress, you need a competent Rockland County bankruptcy attorney on your side. Call or send a message to The Law Offices of Allen A. Kolber, Esq. today. We look forward to hearing from you.