What should you consider in bankruptcy to protect retirement income?

One of your valuable asset is your retirement account in comparison to anything. It is the most secured source of your future income. It helps you to maintain a stress free life as you need not think about the money during your golden age. So, you should take care of your retirement account efficiently. But the question is, will you lose your retirement income that you’ve in your retirement account in bankruptcy? Relax! your other qualified retirement accounts along with 401(K) are secured in bankruptcy.

Things to know to protect retirement income in bankruptcy

1. Though, most of the retirement savings remains unaffected by the bankruptcy as the funds generally are not property of the estate or else are exempt from the creditor claims. But, if the retirement savings which are property of the estate like the IRA or the Keogh plan, the debtor can file for exemptions. The property which is exempted can be removed from the estate straight away.

2. Under the Chapter 7 Bankruptcy a defined benefit plan is generally exempt and in case of the Chapter 13 Bankruptcy, most of the defined benefit plans don’t have any effect on the person filing for the bankruptcy. Because, it is the employer who is mainly contributing towards the pension fund. It is not the debtor who is making any kind of contribution from his income.

3. The defined contribution plan is exempt too and is non-issue under Chapter 7 Bankruptcy just like the defined benefit plan. But, in case of Chapter 13 Bankruptcy, the voluntary contribution by you may be stopped during the bankruptcy repayment plan. This is mainly because, making any kind of contribution from your wages means taking away the money that would have been available for the repayment of your creditors.

However, if the employer you’re working with requires you to participate in the contribution plan, you may be allowed to contribute even if you are making debt payments under the Chapter 13 repayment plan.

Things not to do with your retirement account in bankruptcy

You need to understand some important things to protect your retirement income when thinking about bankruptcy such as:

  1. Most of people use the money of their 401(K) to get back their finances on track. This is absolutely a bad ideas as you’ll pay penalties for withdrawing the funds early.
  2. Don’t transfer the money out of your 401(K) into an another account. Your 401(K) may lose its exempt status.
  3. Try not to transact a big amount of money just before filing bankruptcy. Consult a professional if you really need the money unless you may be charged fraudulent activity by the creditor or may lose the exempt status of the property.


The law protects your retirement account depending on the type of retirement account you have, your age and the state you live in. Any kind of qualified retirement plans are tax exempt and the tax exempt retirement savings funds are automatically exempted by the Bankruptcy law.

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