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Bankruptcy can be a difficult and stressful process, especially when it comes to protecting your retirement savings. In bankruptcy proceedings, debtors are required by law to provide all their financial information – including the status of their various retirement accounts. Unfortunately, this means that those assets may be at risk in certain circumstances. To help you understand what’s involved in filing for bankruptcy while protecting your retirement accounts, Logan A. Weinkauf, a New Bedford bankruptcy attorney who serves the Fall River and Wareham areas of Massachusetts has put together this guide.
Table of Content
What is Bankruptcy?
Bankruptcy is the legal process of addressing a debtor’s unpaid debt. It involves filing for bankruptcy in court and obtaining the approval of a judge for a repayment plan or an exemption from repaying certain debts. Bankruptcy can provide you with relief from creditors, stop foreclosure proceedings, discharge certain types of debts, and protect your assets – including retirement accounts – from seizure by creditors. There are two main types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Overview of Retirement Accounts
Before discussing how retirement accounts are treated in bankruptcy proceedings, it’s important to have an understanding of the different types of retirement accounts. There are several different types, which can be divided into two main categories: employer-sponsored plans and individual retirement arrangements (IRAs).
Employer-sponsored plans include 401(k)s, profit-sharing plans, pension plans, stock options, and other savings accounts. IRAs are primarily managed by individuals and range from traditional IRAs to Roth IRAs. Regardless of the type of account held, all retirement savings qualify for certain tax benefits under federal law.
How Are Retirement Accounts Treated in Bankruptcy Proceedings?
The answer to this question varies depending on the laws in each state. Generally speaking, 401(k)s and IRAs are exempt from creditors in bankruptcy proceedings. However, other types of retirement accounts may not be covered under exemptions. Pension plans, profit-sharing plans, stock options, and other accounts may be subject to a court order for repayment. It’s important to know that the extent of your protection will depend on the state you live in as well as the type of account you have.
Strategies for Protecting Retirement Accounts in Bankruptcy Proceedings
While it’s important to understand how different types of retirement accounts are treated in bankruptcy proceedings, there are also strategies you can use to protect those assets while filing for bankruptcy. Consider these two options:
Consider Reorganizing Debt Rather Than Filing for Bankruptcy
One way to protect your retirement accounts is to consider reorganizing debt rather than filing for bankruptcy. This involves negotiating with creditors and working out a payment plan that satisfies both parties. By using this method, you can avoid the risks associated with bankruptcy proceedings, such as the potential seizure of assets. However, it’s important to note that this strategy may not be feasible if you have a substantial amount of debt.
Consider Chapter 13 Bankruptcy Instead of Chapter 7
Another strategy for protecting your retirement accounts is to consider filing for Chapter 13 bankruptcy instead of Chapter 7. This type of bankruptcy allows you to create a payment plan that takes into account your income, expenses, and other debts. Under this plan, creditors may not be able to seize any retirement accounts you have in order to cover the debt you owe them.
Conclusion
Filing for bankruptcy can be an intimidating process, especially when it comes to protecting your retirement accounts. It’s important to understand how different types of accounts are treated in bankruptcy proceedings as well as strategies for protecting those assets while filing for bankruptcy. Attorney Logan A. Weinkauf is ready to help you. Call 508-375-3878 or use our no obligation case evaluation form on our website’s home page.
Attorney Logan A. Weinkauf is ready to help you. Call 508-375-3878 or use our no obligation case evaluation form on our website’s home page.