Since bankruptcy is such a convoluted procedure, the average American would normally be clueless as to what they can legally keep and what they have to give up to the court system when they file for bankruptcy. The question on the minds of the people filing for bankruptcy shelter is what will happen to my retirement accounts such as 401(k), pension account, or IRA. Are the creditors entitled to the money you have in your retirement funds? In general, your retirement funds are protected from the bankruptcy court for liquidation with a few limitations.
Since too many people have abused the bankruptcy law, the Congress changed the law in 2005 to make it a little more difficult to seek bankruptcy shelter. The new bankruptcy law essentially protects close to all of your retirement plans from any of the creditors. Even though the new bankruptcy law has a few wrinkle on the exemption for your retirement plan, the dollar amount inside your retirement plan under bankruptcy protection has become unlimited.
What retirement funds are sheltered from the creditors?
Retirement plans that are protected from creditors include any ERISA qualified pension plans like:
The only plans that can be liquidated to fulfill the debt indebtedness to the creditors are the traditional and Roth IRAs. If you have more than $1,095,000 in any of your IRA account, the bankruptcy court can take the additional of $1,095,000 to pay off your creditors. The $1,095,000 amount is based on the cost of living at the time, and the bankruptcy law is drafted so that it can change accordingly.
If you are already getting distribution from any of your pension plan, and if you have any amount in excess of $1,095,000, the dispersion from the pension plan can be subjected to repayment to the creditors. In the case of Chapter 13 bankruptcy, your retirement dispersion will be included in the repayment plan to the creditors. The bankruptcy court that is ruling over your Chapter 7 bankruptcy has the final say as to what you will be allowed to keep in regards to your traditional or Roth IRA. The bankruptcy court will make a fair judgment call to make sure that you have sufficient money for survival after the repayment of the creditors.
If you are looking for additional on bankruptcy, please visit us at ToFileBankruptcyOrNot.com.
Since too many people have abused the bankruptcy law, the Congress changed the law in 2005 to make it a little more difficult to seek bankruptcy shelter. The new bankruptcy law essentially protects close to all of your retirement plans from any of the creditors. Even though the new bankruptcy law has a few wrinkle on the exemption for your retirement plan, the dollar amount inside your retirement plan under bankruptcy protection has become unlimited.
What retirement funds are sheltered from the creditors?
Retirement plans that are protected from creditors include any ERISA qualified pension plans like:
- Defined benefit plans
- Money purchase plans
- 401(k)
- 403(b)
- IRAs (SEP and SIMPLE)
- Profit sharing plans
The only plans that can be liquidated to fulfill the debt indebtedness to the creditors are the traditional and Roth IRAs. If you have more than $1,095,000 in any of your IRA account, the bankruptcy court can take the additional of $1,095,000 to pay off your creditors. The $1,095,000 amount is based on the cost of living at the time, and the bankruptcy law is drafted so that it can change accordingly.
If you are already getting distribution from any of your pension plan, and if you have any amount in excess of $1,095,000, the dispersion from the pension plan can be subjected to repayment to the creditors. In the case of Chapter 13 bankruptcy, your retirement dispersion will be included in the repayment plan to the creditors. The bankruptcy court that is ruling over your Chapter 7 bankruptcy has the final say as to what you will be allowed to keep in regards to your traditional or Roth IRA. The bankruptcy court will make a fair judgment call to make sure that you have sufficient money for survival after the repayment of the creditors.
If you are looking for additional on bankruptcy, please visit us at ToFileBankruptcyOrNot.com.
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