Will I Lose My Retirement Accounts If I File for Bankruptcy?

You’ve socked away money in a retirement account for the day when you are finally able to quit working, but suddenly you find yourself with overwhelming debts, perhaps from medical or other unforeseen expenses, and now bankruptcy looms. Will the money you’ve saved for your sunset years be seized to pay your creditors if you file bankruptcy?

The answer is mostly no, though you could face some pitfalls. The key is to leave the funds in your 401(k) or IRA and not tap them to pay creditors. You may feel morally obliged to do so, but those funds will be gone and taxable to boot. Creditors cannot seize qualified retirement accounts to satisfy debts owed.

In short, whether you’re seeking relief under Chapter 13, the repayment plan, or Chapter 7, the liquidation plan, your qualified retirement accounts should be safe.

If your debts are overwhelming you in or around Reno, Nevada, contact the Law Office of Scott N. Tisevich to weigh your options under the bankruptcy code. Attorney Scott N. Tisevich will discuss your situation with you and advise you of your best options going forward for a fresh start.

The Law Office of Scott N. Tisevich also proudly serves clients in Las Vegas and Carson City, the counties of Churchill, Lyon, Story, and Douglas.

Retirement Accounts Protected in Bankruptcy

Retirement accounts that fall under the protection of the Employee Retirement Income Security Act (ERISA) are safe when you file for bankruptcy. These accounts include 401(k) plans, 403(b) plans, IRAs, Keoghs, deferred compensation plans, and pension and profit-sharing plans.

Unfortunately, your savings account, investments, and stock option plans are not protected accounts. These are not ERISA-qualified accounts and can be used for debt relief or seized by your bankruptcy trustee.

There is also a limit to the number of funds that can be protected in a traditional or Roth IRA. As of April 1, 2022, that limit has been set at $1,512,350. The limit is adjusted every three years for inflation using the Consumer Price Index (CPI).

Exemption for Education IRAs, Tuition Savings Programs, and ABLE Accounts

After adjustment for inflation, the amount that can be protected from bankruptcy in an education IRA, a section 529 tuition savings plan, or a qualified ABLE (Achieving a Better Life) account is $7,575, provided the funds were placed in the account between 365 and 720 days before the bankruptcy petition was filed.

What If You’re Living Off Retirement Funds?

If you’re retired and using your retirement accounts for your basic living expenses, that amount will be used in the means test for determining if you qualify for Chapter 7. Social Security, however, is not counted as income.

To qualify for Chapter 7 in Nevada, your income must be at or below the median state income for a household of your size. For a single person in 2022, that limit is $56,949; for a couple, $73,083; for a family of four, $88,746.

If you opt for Chapter 13, your income outside of Social Security will be used to determine the disposable amount – what’s left after living expenses – to compute your monthly repayment amount.

Generally speaking, people relying only on retirement payments and or Social Security payments as their only income will qualify to file a Chapter 7 bankruptcy. It’s also important to consider that if your sole income is from retirement funds, you may be judgment-proof and may not need the protection of bankruptcy. You need to consult with an experienced bankruptcy attorney.

Legal Guidance You Can Trust

If debts are getting the better of you and creditors are hounding you through every means possible, it’s probably time to consider the fresh start available under the bankruptcy code. Once you file, the court will issue an automatic stay, and creditors can no longer contact you. In addition, a hold will be placed on any repossession or foreclosure efforts, though secured creditors can seek relief from that hold.

If you find yourself in a financial bind in or around Reno, Las Vegas, Carson City, or neighboring communities, contact the Law Office of Scott N. Tisevich to discuss your options under bankruptcy. You deserve a fresh start.