How Much Protection Does Chapter 13 Offer for a Retirement Plan?

Here at Haysom Law we advise clients never to pay old collection debts out of their retirement funds. The reason is simple: regardless of whether you file a Chapter 7 or a Chapter 13 plan, the vast majority of retirement funds are protected from creditors. 

Not every plan is the same of course, and there are nuances to every aspect of bankruptcy law. Here’s what you need to know.

Qualified Plans

If your plan is an ERISA plan, that is, set up under the Employment Retirement Income Security Act, then they’re protected from seizure by creditors even if you have a great deal of money in the account. There’s not even a cap on the amount that is protected.

There are exceptions. The state can touch those funds if you’re found guilty of a crime, or if the creditor is a former spouse, or the IRS. But for the most part, those funds are safe. 

ERISA covers most employer-sponsored 401(k) plans, including pension plans. ERISA also covers 403(b) plans, Keoughs, profit-sharing plans, money purchase plans, and defined benefit plans. 

Non-Qualified Accounts

Traditional IRAs and Roth IRAs are not protected to the same degree, but the Bankruptcy Abuse Prevention and Consumer Protection Act still protects up to $1,512,350 so long as you don’t use your IRA for a prohibited transaction like pledging it as security for a loan, or borrowing from it.

The protected amount also increases every three years to account for cost-of-living increases. 

Bankruptcy exemptions may help you protect a little more of those funds, if necessary.

What if you are already living off your retirement?

The portion of money you receive every month is counted as income. In some cases, being at this stage of your life may mean that you don’t need to file for bankruptcy, but you should consult with a lawyer before making any assumptions. 

In Short: Don’t Touch Your Retirement!

You’re going to need it someday, and you can put that money to much better use than paying off some creditor. If you are really concerned that the creditor’s intrusion into your life is going to be so dire that you might need to dip into your retirement, talk to a bankruptcy attorney first.

We may be able to help you protect every cent while helping you get a fresh financial start. We may even be able to help you lower your bills and expenses by ensuring certain creditors go away forever. 

You don’t have to let bad luck, a lost job, illness, or some other issue prevent you from retiring well. If you’ve managed to put a nest egg aside, bankruptcy can help you protect it.

Reach out to Haysom Law to find out how today.

See also:  

What Will Your Chapter 13 Payment Plan Look Like? 

How to Prepare for Your Free Bankruptcy Consultation

What is it Like to Live on a Chapter 13 Budget?


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