Bankruptcy & Retirement AssetsFebruary 2, 2018
Are my retirement assets protected in bankruptcy?
As many of our firm’s regular readers know, we have a continuing blog series on commonly asked questions in bankruptcy. Now that we are beginning a new year, many of you may be contemplating bankruptcy because of debts accumulated in previous years, or other types of financial obligations like back taxes. There is also the possibility that the New Year did not bring good news, and that you may have had personal setbacks like a serious illness or job loss.
Many people are afraid to file bankruptcy because while they have little or no liquid assets, meaning they can’t currently pay their bills, they have large amounts of money and other assets in retirements accounts. The question is, “if I file bankruptcy, will those retirement accounts be protected?”
The answer is generally “yes”. If the retirement asset is held in a qualified retirement account either through an employer like a 401(k), or personal individual retirement account (IRA), the assets are generally excluded from the bankruptcy estate. Bankruptcy Trustees may look at transfers between accounts during relevant periods prior to the bankruptcy. But generally speaking, if you are accumulating money in a qualified retirement account, these assets are not subject to creditors. This is very important because the Bankruptcy Reform Act of 2005 contemplated that people should continue to maintain their retirement accounts so that they have money when they retire. Congress recognized that this was good public policy. In our society, we do not want elderly people to become wards of the State. Moreover, with the constant increase in the cost of living, for many people Social Security benefits will be inadequate to cover monthly expenses. Therefore, Congress realized that it was prudent for individual savers to have confidence that their retirement assets would be protected from creditors.
For this reason, if you are contemplating bankruptcy in 2018, please feel free to contact us for a free initial consultation at (717) 724-9821. We can discuss whether or not bankruptcy makes sense to you, and whether or not we can protect all of your retirement accounts. The likely answer is “yes.”