What will happen to my investments if I file for bankruptcy?

On Behalf of | Dec 29, 2023 | Bankruptcy |

Personal bankruptcy is often the last line of protection for those struggling with major financial challenges. Whether a professional lost their job unexpectedly or someone had massive unanticipated medical costs, their debts may exceed their ability to pay. Creditors who do not receive funds quickly from someone who owes them money may eventually become aggressive about debt collection. Florida adults struggling with overwhelming debt or reduced income often have few options other than filing for personal bankruptcy.

However, they may worry about filing because they don’t want to lose their other resources. No one wants to sacrifice their future financial stability to end current financial challenges. Retirement savings, including 401(k)s, 403(b)s and Roth IRAs are often a major source of concern during bankruptcy. Are those resources at risk?

Not all bankruptcies require liquidation

Most people know that bankruptcy can lead to the mandatory sale or liquidation of certain personal assets. Whether or not someone’s assets are subject to liquidation during bankruptcy depends in part on the type of bankruptcy they file.

Liquidation usually only occurs in a Chapter 7 bankruptcy. Chapter 13 bankruptcy requires a repayment plan and therefore does not trigger liquidation requirements. Even in a Chapter 7 bankruptcy scenario, individuals can often protect some or all of their retirement savings.

Certain accounts are exempt

Under current Florida statutes, Chapter 7 bankruptcy typically does not endanger retirement savings or pensions. Retirement resources are generally exempt from liquidation if someone either has a pension through their employer or uses specialized retirement accounts. Roth IRAs, 401(k)s and 403(b) accounts generally all have protection from liquidation in a Chapter 7 filing.

Sadly, the same is not necessarily true for personal investments intended for retirement. Resources held in mutual funds or stocks purchased to provide income during retirement may be subject to liquidation in a Chapter 7 bankruptcy. Even then, there may be tactics that people can use to reduce how much of their resources are at risk.

For the most part, those pursuing bankruptcy in Florida can move forward without much fear of their filing preventing their retirement. Learning more about the Florida rules for bankruptcy may help those who are struggling financially and looking for relief.