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

Under most circumstances, you can keep your retirement accounts, such as 401ks and IRAs, if you file for Chapter 7 bankruptcy. However, federal law caps the protected amount for some accounts. And, in a few situations, your retirement accounts might not be safe from the claims of the bankruptcy trustee and your creditors.

ERISA v. Non-ERISA Qualified Plans

The type of protection the law provides for your retirement account depends on whether it's an ERISA (Employment Retirement Income Security Act) qualified plan or a non-ERISA plan.

  • ERISA-qualified plans. An ERISA plan is established by an employer, meets certain IRS guidelines, and is tax-exempt.
  • Non-ERISA-qualified plans. The most common non-ERISA plans are IRAs (Individual Retirement Accounts). These plans are also included under BAPCPA's umbrella of protection.

If you're unsure which type is provided through work, check with your employer.

ERISA-Qualified Retirement Plans

You don't need to worry about ERISA-qualified accounts in bankruptcy. The United States Supreme Court ruled that an ERISA-qualified retirement plan isn't property that's included in bankruptcy and can't be taken from you by the bankruptcy trustee appointed to your case. 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 major advantage of these plans is that they're protected up to an unlimited amount. You don't have to worry about losing any of these assets to your creditors.

Bankruptcy Tip: It isn't unusual for someone to try to avoid bankruptcy by using retirement funds, only to file for bankruptcy later. Because you won't lose this type of retirement account in bankruptcy, it's rarely a good idea to dip into one to pay for debt that can be discharged (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.

Non-ERISA Qualified Plans

Federal bankruptcy law also protects non-ERISA retirement accounts. Non-ERISA plans include:

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

Unlike ERISA plans, the protection for traditional and Roth IRAs is capped at $1,512,350 for cases filed between April 1, 2022, and March 31, 2025. If you have more than one traditional or Roth IRA, you can only protect $1,512,3500 combined (not per account). The bankruptcy trustee will be able to take any amount over $1,512,350 to repay creditors. The cap is adjusted every three years for inflation and will adjust again on April 1, 2025.

State vs. Federal Bankruptcy Exemptions

The retirement exemptions are part of the federal bankruptcy exemptions. Even though some states don't allow filers to use the federal bankruptcy exemptions, federal law excludes ERISA-qualified retirement plans from bankruptcy, thereby protecting these accounts for all filers Chapter 7 and Chapter 13 bankruptcy filers.

For all other property, it's important to know whether the federal or state exemptions will apply or if you can choose between the two systems. Find out more about protecting property with bankruptcy exemptions.

Some Retirement Accounts Aren't Protected

Although ERISA-qualified 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.
  • The IRS might be able to reach your retirement assets with a valid tax lien against you.
  • Divorcing spouses might have access to your retirement accounts.
  • Savings accounts, investment accounts, stock option plans, and the like are rarely safe in bankruptcy.

Learn more in What Happens to Bank Accounts, Pensions, and Retirement Funds in Bankruptcy?

Navigating a Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

Schedule A/B: Property

Schedule C: The Property You Claim as Exempt

Related Information

What Happens to Your Property in Bankruptcy?

The Wildcard Exemption

Chapter 7 Homestead Exemption

Exemptions in Chapter 13 Bankruptcy

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

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 consulting with a local bankruptcy lawyer.

Updated April 20, 2022

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