Bankruptcy Protection for Retirement Savings

Written and Verified by Ralph A. Ferro, Jr., Esq.

There is bankruptcy protection for your retirement savings when you file bankruptcy.

It would be best not to withdraw or cash out these valuable assets to pay your debts without carefully examining your overall debts. Since there is retirement savings account protection in bankruptcy, these assets can be out of reach from creditors. While you are in default, you can continue your contributions.

If you are considering bankruptcy, consult an experienced bankruptcy attorney before liquidating your pension funds. It would be best not to withdraw from your retirement savings accounts to pay your debts before considering bankruptcy.

Similar to 401(k) qualified plans, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA” or the “Act”), which became effective for bankruptcies that filed after October 17, 2005, gave protection to debtor’s IRA funds. This was done by exempting IRA funds from the bankruptcy estate. In other words, most unsecured business and consumer debts.

A rollover from a SEP or SIMPLE IRA into a rollover IRA receives only $1 million of protection. This is because section 408(d)(3) rollover is not one of the rollovers of the Bankruptcy Code section U.S.C. 522(n) sanctions.

You should advise your bankruptcy attorney if you withdraw from your retirement accounts before filing bankruptcy. A careful review of these funds is necessary. Otherwise, there may not be retirement account protection from creditors.

Here is an example of what can happen when you must carefully review your options before withdrawing from your pension accounts. These assets would have been protected if these debtors had worked with a Board Certified Bankruptcy Attorney. These withdrawals should not have been done before the bankruptcy to get protection from creditors and a bankruptcy discharge.

When you withdraw funds from your pension and spend it or deposit it in another non-pension account, these monies are no longer exempt from bankruptcy.

Below is a case where the debtors did not ask:

Is there bankruptcy protection for retirement savings? Why weren’t they protected?

They did not work with an experienced bankruptcy attorney, so there was retirement savings protection from creditor reach.

In a recent case, a husband liquidated his $36,500 pension fund as follows:

Taxes for premature withdrawal $8,500
Gift to church $4,000
Gift to Wife $5,000
Bought a car $3,900
Paid a debt of $1,000
Retainer to his attorney $3,000
Balance that he could not account for $6,100

The Debtors did not disclose this in Chapter 7. The Judge denied both the husband and wife’s discharges. The wife did not tell the $5,000 gift from her husband, and the husband did not disclose the withdrawal, and all that was spent. In addition, the husband could not account for $6,100.

The Debtors should not have taken these withdrawals from their retirement savings before filing for bankruptcy.

Retirement savings protection was lost.

The $36,500 were all considered fraudulent transfers. – Both bankruptcy discharges were denied….

If you are experiencing financial hardships, please get in touch with me for a free bankruptcy consultation. I will give you expert legal advice on whether bankruptcy is an option.

Retirement savings protection in Bankruptcy is available if you have the best bankruptcy lawyer. You worked all your life to put away savings for your retirement. You should be able to protect those savings even when you file for bankruptcy.

Filing bankruptcy does not affect your retirement savings accounts.

You can call me for a Free Bankruptcy Consult – before you withdraw retirement savings $ to pay debts.