Skip to Content

Is My 401k Safe in My Bankruptcy Case?


If you are considering filing a bankruptcy case, you are probably worried about what will happen to your assets. For many people, their retirement account is one of their most significant assets. Luckily, bankruptcy law provides a variety of exemptions that protect certain types of property from being included in your bankruptcy estate, including retirement accounts.

A qualified retirement account is protected from the trustee and your creditors. This includes qualifying 401k accounts, pensions, Individual Retirement Accounts (IRAs), Keoghs, and profit sharing plans. However, there is a cap on the amount of exempt funds held in IRAs, which is currently $1,245,475 per person. Of course, most people have accounts that are well below the cap. If you are not sure of the amount of your retirement account or if it exceeds the cap, it is vital that you discuss it with your bankruptcy lawyer.

It is important to understand that while the funds held in your qualified retirement accounts are protected, any retirement benefits that you receive as income are not exempt. If you file a Chapter 7 case, the trustee cannot take any retirement benefits that are necessary for your support. However, any benefits that are over and above what you need for support can be seized to pay your creditors. If you file a Chapter 13 case, your retirement benefits are included in your Chapter 13 plan and will be included in determining what percentage of your unsecured debts will be repaid.

Bankruptcy planning is very important if there is time. You should confer with your attorney to determine whether your retirement accounts qualify for protection in bankruptcy, as well as how your filing could impact your accounts. This is particularly important if you have taken a loan against your 401k. There are many issues that should be considered to ensure that you get the most protection for your assets available.

Properly claiming all of the applicable bankruptcy exemptions is one of the most important steps in having a successful Chapter 7 or Chapter 13 case. When you meet with your bankruptcy attorney, you should ask him or her to explain how the exemptions will apply to each of your assets, including all of your retirement accounts.

If you are considering filing a bankruptcy and you need help determining which type of filing would be best for you, contact Fitzgerald & Campbell to schedule an appointment. We do not offer just one debt relief option, we don’t push you in one direction. If bankruptcy right for you, we will tell you. If it’s not, we will tell you that. If bankruptcy is your get out of debt plan, it needs to be done right. It needs to be in the hands of experienced lawyers who have been there before. Contact us today!

Share To: