Is Your Retirement Plan Protected in Bankruptcy?

June 27, 2013

A 401(k), a retirement plan held by millions of Americans, may be one of your most important financial assets. In addition to its value, it represents something powerful for you and your family: the ability to retire. As many debtors consider filing for personal bankruptcy, they often ask: will I be able to keep my 401(k) assets?

 

The short answer is, “Yes – most of the time.” In general, the assets contained in a 401(k) plan are shielded from creditors during Chapter 7 or Chapter 13 bankruptcy. Specifically, Section 522 of the Bankruptcy Code provides an unlimited exemption for retirement assets exempt from taxation such as ERISA qualified and solo 401(k) plans.

 

There is a catch, however. If you withdraw assets from your 401(k) account, you may be required to recognize those dollars as income – and as non-exempt property available to your creditors. Even if you later attempt to return this income to your 401(k) account, it may be too late and the damage to your bankruptcy-protected retirement assets may have already been done.

 

Want to know more about the relationship of your 401(k) account and your pending Chapter 7 or Chapter 13 bankruptcy? The dedicated and experienced attorneys at the Dallas law firm of Fears Nachawati are prepared to answer these and other important questions. To get started with your free consultation, talk to our professionals today.

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