One of the many fears that people have that keep them from filing bankruptcy (or at least putting it off) is that they will lose the money in their pensions. They have all of that money saved for retirement, and they don't want it taken away from them.

Good news, though; it most likely won't happen!

Most Pensions Are Untouchable

Congress, when it wrote the bankruptcy code, was realistic; it knew that under most state's laws (like New Jersey), creditors can't levy or garnish a pension or a retirement account. So why should they be able to when you file bankruptcy? Why give creditors superpowers?

So what do I mean by "most pensions"? Well the bankruptcy code talks refers to and includes in the 100% exemption "retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986." So that 401(k) or 403(b) account is safe!

But You Could Still Lose the Money!

A problem can arise, though, if prior to filing bankruptcy you take funds out of the pension fund and put them into a bank account, intending to keep it rather than roll it over into something else. This often happens in the context of a divorce, where pension funds are distributed to the parties as part of equitable distribution, and can cause a problem.

There may be ways to deal with this and protect the money, depending on how much you took out. But that is really on a case-by-case basis.

A Big Reason Why You Need a Bankruptcy Attorney

This is another reason why you should have an attorney represent you in your bankruptcy. If you make a mistake with these pension funds, or have them in a non-qualifying account under the bankruptcy code, you could stand to lose them!

If you live in Burlington, Camden, Gloucester, Salem or Cumberland County, are considering filing bankruptcy, and are ready to take action, call me right away at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

If you are looking for more information on how bankruptcy might help you with your divorce, then you should download my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy.

Not sure if bankruptcy is right for you? Take the quiz to the right to find out more!

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Steven J. Richardson
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