People filing for bankruptcy are often worried about losing their retirement money. However, in most cases, this money is protected and untouchable by the trustee. This is why I advise against raiding a pension or IRA for money to pay down debts.
You can seriously jeopardize your future for no good reason. This is because the money is either not considered an asset, is a fully exempted asset, or has a high exemption amount.
Retirement Money Is Not an Asset
Some retirement vehicles are not considered part of your "bankrupt estate" or pool of assets available to a trustee to sell to pay creditors. The main requirement is that there be an "anti-alienation clause" (a clause preventing creditors from accessing those funds).
The logic behind this is that if creditors cannot seize the money outside of bankruptcy, they should not be able to do so inside one. Employers usually maintain plans of this nature as group plans with many participants. These include a(n):
- Education IRA
- ERISA qualified employee benefit plan
- Deferred compensation plan
- Tax-deferred annuity
Retirement Money Exempted
Other retirement investments are considered part of the "bankrupt estate" because they may only have one participant or do not have an anti-alienation clause. However, most are considered entirely or partially exempted under the bankruptcy code. These include:
- Pensions, profit sharing, and stock bonus plans
- Annuities
- IRAs
- Roth IRAs
- Simple Employee Pensions
- Simple Retirement Accounts
- Deferred Compensation Plans
However, IRAs have an exemption capped at $1,095,000 (adjusted periodically for inflation).
This area of law is complex, but as an experienced New Jersey bankruptcy lawyer, I will help you protect your retirement, even during bankruptcy.
