Will Bankruptcy Destroy My Retirement Plan?
Bankruptcy: the great equalizer. At its best, it’s a giant eraser that wipes away all your debt in one fell swoop. Even at its not-best, bankruptcy is a wonderful way to get your overbearing amount of debt under control, giving you a feasible (read: actually possible) repayment plan to set you on your way to being debt free.
The part of bankruptcy, though, where you lose some of your property as assets to repay creditors can be a little frightening, especially when the retirement plan for which you’ve been saving up most of your life is on the line.
So, what do you do? Do you continue wading through the quagmire of debt, enduring the harassing calls from creditors? Or do you take a chance and hope your retirement fund, your single ray of sunshine through all the years of monotonous work, stays intact?
Good News: Retirement Funds are Exempt
I’ll say that again: your retirement fund is safe. When courts divvy up your assets in order to repay creditors, your property is divided into two categories: exempt and non-exempt property. Non-exempt property is usually non-necessary items that won’t ruin your life if you lose them (such as your grandma’s bronze bust of her favorite cat).
Exempt property, however, are the items that could severely affect your life (in turn, affecting your ability to repay debts) if they were taken from you, such as your primary car or your home.
Your retirement fund is exempt property.
A quick note on this: traditional and Roth IRAs are slightly different than 401(k)s and profit-sharing plans. For a traditional and Roth IRA, the exemption has a limit of up to $1,245,475 per person. This amount is a combination of all plans, not $1.2 million per plan.
However, $1 million is still a pretty comfy amount with which you can sip fruity drinks with little umbrellas for the rest of your days, so I wouldn’t be too worried.
If you’re currently overwhelmed with debt and are considering bankruptcy, our bankruptcy attorneys can be your greatest allies. Bankruptcy laws can be tricky, and the last thing you want is to overlook some random detail, thereby increasing the amount of debt you’ve got over your head. Call us today and see how we can best help you!
