Ordinarily, money in a pension investment vehicle is beyond the reach of a New Jersey bankruptcy trustee. You can have up to $1 million in an IRA, and unlimited funds in an ERISA qualified pension vehicle, or many different pension plans sanctioned under the Internal Revenue Code, including an 401k.
But what happens if you take it out and put it in 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.
What If I Haven't Filed Yet?
The answer depends on whether you have already filed bankruptcy, and the type of bankruptcy you filed. If you have not yet filed, then the pension money becomes a cash asset reachable by the trustee once you file, unless you can exempt it. A chapter 7 trustee will take the nonexempt portion outright; a chapter 13 trustee will either insist you turn it over all at once, or pay an equivalent amount through your plan.
What If I've Already Filed?
If you have already filed when you take out the money, then it depends on the type of bankruptcy filed. Here in New Jersey, a chapter 13 trustee may well seek to have that unexempted money paid into the plan, but a chapter 7 trustee would not be able to reach it. The only exception would be where you were in a chapter 13, took the money out of the pension, and converted to a chapter 7.
What Should I Do?
I never recommend taking money out of a retirement investment in order to pay bills, but sometimes it is the only way to survive. If this sounds like you, and you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me 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.