Can You Keep Your Retirement Accounts in Bankruptcy?

Under most circumstances, you can keep your retirement accounts, such as 401ks and IRAs, if you file for Chapter 7 bankruptcy.

By , Attorney · University of the Pacific McGeorge School of Law

You can keep retirement accounts, such as 401ks and IRAs, when filing for Chapter 7 bankruptcy in most situations. However, federal law caps the protected amount for some retirement accounts. And, some retirement accounts aren't safe from the claims of the bankruptcy trustee and your creditors.

Before filing for bankruptcy, you'll want to learn:

  • if you can keep your retirement account in bankruptcy
  • why ERISA-qualified retirement accounts are safe
  • how much of your IRA you can protect if you file for bankruptcy, and
  • retirement accounts people lose in bankruptcy.

We also explain how to use bankruptcy exemptions to protect retirement accounts and why it's a good idea to consider filing for bankruptcy before using protected retirement funds to pay off debt.

Once you've mastered this area, check out our quick ten-question bankruptcy quiz. It can help you spot potential bankruptcy issues fast.

Will My Retirement Account Be Protected in Bankruptcy?

In many cases, yes. Both federal and state laws protect retirement accounts. We explain the basics below but keep in mind that consulting with a local bankruptcy lawyer is always the best way to protect assets.

You'll Keep Your ERISA-Qualified Retirement Plan in Bankruptcy

You don't need to worry about ERISA-qualified accounts in bankruptcy. Under federal law, an ERISA-qualified retirement plan isn't property included in bankruptcy and can't be taken from you by the bankruptcy trustee appointed to your case. Chapter 7 and Chapter 13 bankruptcy filers aren't at risk of losing these retirement funds in a bankruptcy case.

If you aren't familiar with an ERISA plan, it's established by an employer, meets certain IRS guidelines, and is tax-exempt. Examples of ERISA-qualified retirement plans include:

  • 401(k)s
  • 403(b) or profit-sharing plans
  • 457(b) deferred compensation plans
  • governmental plans, and
  • tax-exempt organizational retirement plans.

Another significant advantage of these plans is that under federal law, they're protected up to an unlimited amount. You don't have to worry about losing any of these assets to your creditors.

Check with your employer if you're unsure if your retirement plan is an ERISA-qualified account.

Is My IRA Exempt From Bankruptcy?

Yes, federal bankruptcy law also protects IRA accounts. These accounts include:

  • IRA's
  • Roth IRA's
  • SEP-IRA's (for small business owners)
  • SIMPLE IRA's (for self-employed individuals), and
  • similar retirement plans.

But IRAS are non-ERISA retirement accounts and aren't fully covered in bankruptcy. Even so, the exemption amount is very generous. Most filers can cover their entire account with the exemption and don't lose funds to the bankruptcy trustee.

What Are the Federal IRA Bankruptcy Exemption Amounts?

You can protect up to $1,512,350 for traditional and Roth IRAs if you file a bankruptcy case between April 1, 2022, and March 31, 2025. The cap is adjusted every three years for inflation and will change again on April 1, 2025.

If you have more than one traditional or Roth IRA, you can only protect $1,512,350 combined, not per account. The bankruptcy trustee can take any amount over $1,512,350 to repay creditors.

Do State Exemptions Protect Retirement Accounts in Bankruptcy?

Yes. Many states' bankruptcy exemptions protect state, county, and city retirement accounts.

Filers who use the state's bankruptcy exemptions can also use the federal nonbankruptcy exemptions. The federal nonbankruptcy exemptions protect many additional federal retirement accounts and benefits.

Most states only allow residents to use the state exemptions, but some let residents choose between the state or federal bankruptcy exemptions. Find out more about protecting property with bankruptcy exemptions.

Which Retirement Accounts Aren't Protected in Bankruptcy?

Although retirement accounts are generally safe from your creditors when filing for bankruptcy, a few exceptions exist.

  • Once you withdraw money from a retirement plan, the federal exemption no longer protects it. You'll need to protect the funds with a cash exemption, a wildcard exemption, or something similar.
  • Savings accounts, investment accounts, stock option plans, and the like are rarely safe in bankruptcy.

Learn more about what happens to bank accounts, pensions, and retirement funds in bankruptcy. If you owe taxes, you might be interested in learning whether the IRS can reach your retirement assets with a valid tax lien against you.

Should I Avoid Using Protected Retirement Funds Before Bankruptcy?

Yes. It isn't unusual for someone to attempt to avoid filing for bankruptcy by using retirement funds to pay bills, only to file for bankruptcy later.

When you can safeguard your retirement account in bankruptcy, it's rarely a good idea to dip into it to pay for debts that can be "discharged" or eliminated in bankruptcy. Consider doing so only as a last resort.

Emerging from bankruptcy with your retirement in place will help you make the most of your fresh start.

Navigating Your Bankruptcy Case

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 you'll find resources we think you'll enjoy or go to TheBankruptcySite for more easy-to-understand articles.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

Schedule A/B: Property

Schedule C: The Property You Claim as Exempt

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy 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 20, 2022

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