For individuals who intend to declare bankruptcy, the fear of creditors going after their retirement accounts to recover their loans is real. They are concerned that they may lose their retirement funds and end up living their later years struggling to make ends meet.
Today, you will learn about what happens to retirement accounts during bankruptcy. If you need more clarity and help with filing, our Minneapolis bankruptcy lawyers can provide legal guidance that protects your assets, including your retirement accounts, and, where possible, work to help discharge your debts.
Are Retirement Bank Accounts Protected From Creditors?
Due to the Employee Retirement Income Security Act (ERISA), certain filers’ retirement funds are protected during bankruptcy proceedings. Therefore, Minneapolis-based petitioners may not lose their retirement accounts to creditors who would like to claw back their loans by liquidating some or all of the borrower’s assets.
This is possible because most retirement funds are held in a trust by employers until they can be vested, or the employee is 59.5 years old, per ERISA’s requirements.
This shields those funds from access by lenders. As long as the retirement account is funded through a defined and consistent employer and or employee contribution plan, creditors cannot reach those savings. Retirement savings accounts eligible for ERISA protection include:
- SIMPLE 401(k)
- Traditional 401(k)
- Automatic enrollment 401(k)
- Safe harbor 401(k)
- Employee Stock Ownership Plans (ESOP)
- Some 403(b)s
- Profit-sharing perks
Protections For IRAs
Traditional IRA, Roth IRA, Simple IRA, and/or Rollover IRAs are protected by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). For Traditional and Roth IRAs, individuals seeking consumer debt relief under Chapter 7 and Chapter 13 bankruptcy filings have aggregate bankruptcy protection limits of up to $1,711,975.
So long as a debtor’s IRA accounts remain under the specified value, those IRAs enjoy these protections. SEP IRAs and SIMPLE IRAs receive unlimited protection under federal bankruptcy law. This means creditors cannot take some or all of the funds held in a filer’s SEP or SIMPLE IRA account.
Contact an Experienced Minneapolis Bankruptcy Lawyer Today
As you can imagine, understanding what happens to retirement accounts during bankruptcy can feel overwhelming for Minneapolis residents. Our Minneapolis bankruptcy attorneys could help clarify how retirement account protections may apply if you intend to file a Chapter 7 or Chapter 13 bankruptcy.
Our legal team has helped many people like you navigate the bankruptcy process and safeguard retirement accounts, property, assets, and vehicles from creditors. Let us help you explore your legal options with confidence.
Contact us to schedule a case evaluation.
