Bankruptcy is often associated with losing everything, including your hard-earned retirement savings. But contrary to popular belief, filing for bankruptcy doesn’t necessarily mean that you have to surrender all your retirement accounts. There are ways of protecting your retirement accounts from creditors during bankruptcy. In this blog post, we’ll discuss different types of retirement accounts, what counts as a qualified account, and how you can safeguard your retirement savings.
The Two Types of Retirement Accounts
When it comes to retirement accounts, there are two types: qualified and non-qualified. Non-qualified accounts are regular investment accounts that you use to save for retirement. These accounts are not protected during bankruptcy, so creditors may seize your investments if you file for bankruptcy. On the other hand, qualified accounts are tax-advantaged retirement accounts that the IRS recognizes and approves. These accounts are usually exempt from bankruptcy proceedings, meaning your creditors can’t touch them.
What You Need to Know About Qualified Accounts
The most common types of qualified accounts are 401(k)s and IRAs. A 401(k) is a retirement savings account offered by an employer, while an IRA is an individual retirement account. These accounts are tax-deferred, meaning you won’t have to pay taxes until you withdraw the money in retirement. If you file for bankruptcy, you can protect your 401(k) and IRA from creditors as long as you follow specific rules and regulations.
One of the most important things you need to do to protect your retirement accounts in bankruptcy is to provide accurate and complete information about your retirement plans. Your bankruptcy attorney will review your account statements and determine whether they qualify as protected retirement accounts. If you have a mix of qualified and non-qualified retirement accounts, your attorney may advise you to transfer your assets to your qualified accounts to shield them from creditors.
How Bankruptcy Exemptions Can Protect Your Assets
Another way of protecting your retirement savings during bankruptcy is to use exemptions. In some cases, state or federal laws may allow you to exempt certain assets from bankruptcy proceedings, including retirement accounts. However, the specific amount of exemption you can claim will depend on the type of retirement account, its balance, and the laws of your state.
It’s also worth noting that filing for bankruptcy may impact your retirement plans. For instance, if you have a 401(k) loan when you file for bankruptcy, you may be required to repay the loan in full or risk losing your 401(k) savings. Similarly, if you have already started receiving retirement benefits, such as Social Security or pension payments, you may not be able to discharge them in bankruptcy.
Your Attorney Can Help Protect Your Accounts
Recently, I had a conversation with a client who had two different types of accounts – a nonqualified account and an IRA, which is a qualified account. After filing for bankruptcy, our next step was to meet with the trustee to verify the types of accounts the client had. Unfortunately, there was some confusion, and the trustee initially believed that both accounts were non-qualified. This could’ve resulted in the client surrendering some of her accounts. Fortunately, we had the proper documentation in place, and we could demonstrate that the money in her IRA was totally protected and exempt from any creditors. For the client, it was a relief to know that her assets were protected and that we had done the work beforehand to ensure that her documentation was in order.
Filing for bankruptcy can be a stressful and daunting experience, especially when you need clarification on what will happen to your retirement savings. However, with the right legal guidance and strategies, you can protect your retirement accounts during bankruptcy and ensure that you have a secure financial future. Remember, if you’re considering filing for bankruptcy, it’s crucial to work with an experienced bankruptcy attorney who understands the intricacies of bankruptcy law and can help you make informed decisions. Don’t let bankruptcy erode your retirement plans – take steps to safeguard your future today!
Contact OlsenDaines for Bankruptcy Help Today
From our free bankruptcy consultations to our complimentary credit rebuilding program, bankruptcy attorneys at OlsenDaines are here to help you with every step of the bankruptcy process. We are the largest and most experienced consumer bankruptcy law firm in the Pacific NW. We are able to address your financial difficulties with the expertise and careful planning you are seeking. Contact us today!