Many people — especially those closer to retirement age — are afraid that if they file for Chapter 7 or Chapter 13 bankruptcy they will lose their pension and retirement funds.  But that is not the case, with some limitations.

Back in 2005 Congress passed new bankruptcy laws.  Virtually all retirement accounts and pension plan funds are exempt from creditors — meaning you get to keep them if you file for Chapter 7 bankruptcy.  Also, if you file a Chapter 13 repayment plan bankruptcy, the amount you have in your retirement accounts will not affect how much you repay unsecured creditors.

With a few exceptions, the exemption amounts are unlimited, so the entire amount of the retirement account is protected.  Plans covered by the exemption include any ERISA qualified pension plan, such as 401(k)s, 403(b)s, IRAs (Roth, SEP, and SIMPLE), Keoghs, profit-sharing plans, money purchase plans, and defined-benefit plans.  The only limits to this involve traditional IRAs and Roth IRAs.  For those, the exemption is limited to $1,283,025 per person (as of 12/2016).  If you happen to be one of the lucky ones with more than that in your account, the excess can be taken to pay back your creditors.

Although the amounts sitting in your retirement accounts are exempt, any retirement benefits paid to you as income is not exempt.  If you file Chapter 7 bankruptcy, the court cannot take any retirement benefits that are necessary to your support, but it can take any amount over what you need for support (if any) to pay your creditors.  In a Chapter 13, any retirement benefits you are receiving are included as part of your income under your repayment plan and will help determine what portion of your unsecured debts you must repay.

If you are facing bankruptcy and have money saved for retirement, please consult an attorney to make sure you take the path that best preserves your money for your golden years.

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