Is There Bankruptcy Protection for Retirement Savings?

money retirement

The answer is Yes.   

However, you should not withdraw or cash out these valuable assets to pay your debts without careful examination of  your overall debts.   Since there is retirement savings accounts protection in bankruptcy, these assets can be out of reach from creditors.    As a matter of fact, while you are in bankruptcy, you can continue your contributions.

If you are considering filing bankruptcy, consult an experienced bankruptcy attorney before you liquidate your pension funds.   You should not 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 an 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 the Bankruptcy Code section 522(n) sanctions.

If you withdraw from your retirement accounts before filing bankruptcy, you should advise your bankruptcy attorney.   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 do not carefully review your options before withdrawal from your pension accounts.    If these debtors worked with a Board Certified Bankruptcy Attorney, these assets would have been protected.   These withdraws should not have been done before the bankruptcy in order to get protection from creditors and a bankruptcy discharge.

As soon as you withdraw funds from your pension and either spend the money or deposit it in another non-pension account, these monies are no longer exempt in 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 that 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        $1,000
  • Retainer to his attorney    $3,000
  • Balance that he could not account for:      $6,100

The Debtors did not disclose this in their Chapter 7.  The Judge denied both the husband and wife’s discharges.    Wife did not disclose 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, contact me for a free bankruptcy consultation.   I will give you expert bankruptcy legal advice on whether filing bankruptcy is an option for you.

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 filed bankruptcy.   

Filing bankruptcy does not affect your retirement savings accounts.

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

Ralph A. Ferro, Jr., Esq.  – NJ Bankruptcy Lawyer