When you've made sacrifices by putting away money for retirement, you don't want to worry that you'll lose it if you file for bankruptcy. Learn about the protections afforded to 401(k) and ERISA-qualified retirement accounts, including:
Once you've learned what will happen to your 401(k) in bankruptcy, check out the resources provided at the end of the article. You'll find links to applicable bankruptcy forms and additional articles we think you'll enjoy.
The purpose of bankruptcy law is to help get filers back on their feet financially, not to make life more difficult. So filers aren't stripped of all belongings. Filers keep the things needed to maintain a home and employment.
But that's not all. Filers can also keep most tax-exempt retirement accounts, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs, and defined-benefit plans. However, traditional and Roth IRA protection is capped at a combined total of $1,512,350 (for cases filed between April 1, 2022, and March 31, 2025. These protections apply in both Chapters 7 and 13.
The benefit of this protection is that you can file for bankruptcy without jeopardizing your nest egg. To maximize the assets you'll have after bankruptcy, avoid doing these things before you file:
Federal law actually excludes ERISA-qualified retirement accounts from bankruptcy. You'll need to protect your remaining property with federal or state exemptions.
Your state decides whether you must use state bankruptcy exemptions. Some states, but not all, let you use the federal bankruptcy exemptions instead of the state system if you'd be able to protect more property.
Keep in mind that many state exemption systems offer retirement protections in addition to the federal protections discussed above. Also, if you choose the state bankruptcy exemptions, you can use the federal nonbankruptcy exemptions, too, which is important because the federal nonbankruptcy exemptions cover a wide range of federal retirement programs.
This checklist can help with bankruptcy exemption planning.
Keep in mind that in Chapter 7, filers lose property not covered by an exemption. In Chapter 13, filers pay for nonexempt property in the Chapter 13 payment plan.
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
More Bankruptcy Information
Bankruptcy Forms and Document Checklist
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
Updated April 21, 2022