If I File Bankruptcy, Will I Lose My Retirement Savings?

Are you saving for retirement or currently retired? Overwhelming debt can place your retirement savings at risk. Consequently, many older Americans are using bankruptcy as a solution. Yet, people often worry that filing bankruptcy will place their retirement savings at risk. Will a trustee seize your retirement savings to pay your creditors? Today’s article will help answer if a bankruptcy will cause you to lose your retirement savings.

The vast majority of individuals have little to worry about and most retirement savings are safe. Since 2005, the Bankruptcy Code gives people an exemption of up to a million dollars for traditional and Roth IRAs. Plus, the courts have the power to exempt an even larger amount, if it is appropriate. Moreover, there is unlimited protection for rollover money that is constructively received. So, an IRA will not only protect you from taxes, it can also protect you from your creditors.

What happens if you have an interest in a pension plan? The savings in a pension plan is also generally not considered an asset within a bankruptcy. In the vast majority of instances, your retirement savings cannot be taken away from you. Nevertheless, you will need to disclose these accounts. However, funds moved from a retirement account to a checking or savings account to pay your daily expenses will not receive this protection.

All that said, there are some retirement plans that may not qualify for an exemption from a bankruptcy. These can include funds that were improperly funded, employee stock purchase plans, plans that do not technically qualify as retirement plans under the tax code, and several others. Regardless, the bottom line is that the law will protect retirement savings for most people. The best course of action is to always consult with a qualified attorney to discover if your retirement savings is safe and the best course of action.

Do you have questions? What haven’t we covered yet that is important to you? If you would like to talk about bankruptcy and your retirement savings, or a related topic, please contact us.

Harris Ammerman
Follow me

Harris Ammerman

Since 1986, we have helped more than 10,000 clients and their families file for bankruptcy – more than any other firm in the region. We have more 50 years of combined experience and are conveniently located in the heart of Washington, D.C.
Harris Ammerman
Follow me
Show Comments