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Broward County
954-566-9000
Palm Beach County
561-487-0200
Miami-Dade County
305-444-8660
Indian River County
772-564-1321
Your Road To A Better Future

Does bankruptcy protect retirement assets?

On Behalf of | Oct 8, 2021 | Bankruptcy |

Persons struggling financially might file for bankruptcy to protect themselves from creditors. Not all bankruptcy debt faces discharge, though. With Chapter 13 bankruptcy, the debtor must make monthly payments to creditors as part of the filing. Some Florida residents may worry about what specific creditor obligations they must pay. Namely, concerns might arise about losing retirement savings accounts to creditors.

Individual retirement accounts and bankruptcy

The law allows someone to make tax-exempt contributions into an IRA investment fund up to the maximum annual amount. Those who consistently put money into such funds may heavily rely on the accounts for their retirement planning. Long before retirement arrives or even after, someone could fall into severe financial trouble. Filing for bankruptcy might be an option, and the bankruptcy laws could protect IRA assets.

Under bankruptcy law, IRA assets receive protections from creditors up to a threshold amount. As of 2021, the threshold amount is $1,362,800; this figure represents what is exempted from the bankruptcy estate.

An IRA might not be the only retirement asset someone worries about before entering bankruptcy. Thankfully, the law addresses other retirement savings accounts.

Additional bankruptcy protections for retirement accounts

Employee Retirement Income Security Act, or ERISA, plans also fall under statutes intended to protect people’s savings during bankruptcy proceedings. Most 401(k), thrift savings and pension plans fall under the ERISA protections from private-sector creditors. However, the IRS may be able to seize funds from ERISA plans to cover tax debts. With that said, there might be ways to address tax debt via payment plans.

Once someone enters bankruptcy, collection actions stop. Constant calls from creditors could make life stressful for those dealing with heavy debts. Putting a stop to creditors is one way that the bankruptcy courts help. Laws intended to protect retirement assets help debtors, and there are more possible benefits to filing for bankruptcy protection.