Protecting Your Retirement When You Face Bankruptcy
You’ve worked hard to build a nest egg for your retirement, faithfully contributing to an IRA or a 401(k). Maybe you’ve had health problems or lost your job, though, and the bills have piled up. You may see bankruptcy as the only way to get back on your feet again. If you file for bankruptcy, will you lose your retirement funds and be forced to start all over again?
The Exemption of Retirement Accounts in Bankruptcy Proceedings
As a general rule, most pension and retirement funds may not be taken or used by creditors in a bankruptcy proceeding. In a Chapter 7 case, they cannot be liquidated to satisfy creditors.
The rule protecting pension and retirement accounts includes all types, 401(k) accounts, 403(b) accounts, profit sharing plans, money purchase plans, Keoghs and defined benefit plans, so long as they are properly set up as “ERISA Qualified”. For New Jersey residents, any form of IRA is also protected, unless the IRA funds were improperly or fraudulently put there. (Inherited IRA’s are an open issue right now, a question the US Supreme Court is presently considering) In other states, different exemptions may apply.
Social Security is always protected.
Federal law protects Social Security benefits from claims of creditors. This protection continues after you receive the money, as long as you can “trace” the money in an account back to Social Security payments. We recommend against mixing in Social Security payments in an account with substantial amounts of money from other sources.
This area, like so many others, is potentially complex. This discussion is fairly general. Independent review by a qualified attorney is highly recommended.
Contact Neuner & Ventura, LLP
At Neuner & Ventura, LLP, we provide a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. To set up an appointment, call our office at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.