If you’re like most people, much of your adult life has been spent working to save for your eventual retirement. However, when you find yourself in debt, it can feel like your hard work is at risk. As such, if you are considering filing for bankruptcy, you may be hesitant as you’re worried about what will happen to your retirement accounts during this process. The following blog explores what you should know about bankruptcy and retirement accounts, as well as the importance of connecting with a Shelby County, TN bankruptcy lawyer to help guide you through these complicated matters.
What Happens When I File for Bankruptcy in Tennessee?
When you file for bankruptcy in Tennessee, understanding what you can expect is critical. As a consumer, you will typically face one of two filing options – Chapter 7 or Chapter 13.
Chapter 7, in simple terms, is a liquidation process. As such, the trustee assigned to your case is responsible for liquidating your non-exempt assets to pay creditors back. When all eligible assets have been sold and creditors have been paid, your case will be closed, and the remainder of your eligible debts will be discharged. This means you are no longer legally liable for repaying these debts, and creditors can no longer contact you or take collection efforts against you.
If you choose to file Chapter 13, the process is much different. Instead of having assets liquidated over a six-month period, you and your trustee will work together to create a repayment plan that will last three to five years. Essentially, your trustee will reorganize your debts into one monthly payment, and when you pay them, they will distribute the money to your creditors. Your monthly payment amount will depend on several circumstances, including your disposable income and your secured debt payments.
Are Retirement Accounts Exempt Assets During Bankruptcy?
Many who want to file for bankruptcy are hesitant to do so because they fear that their retirement account will be taken to pay creditors. However, you should know that many retirement accounts are protected during bankruptcy. As such, they cannot be taken and used to repay creditors.
Typically, you’ll find that any Employee Retirement Income Security Act (ERISA) is exempt from bankruptcy filings. This includes 401(k)s, Profit-Sharing plans, and SIMPLE IRAs. If you have a Roth or Traditional IRA, it’s important to understand that the majority of your savings will be protected. While the total amount that is exempt will vary based on inflation, you can expect to retain around one and a half million dollars in your account.
Filing for bankruptcy is not a decision that should be made lightly, as it can undoubtedly have lasting impacts. However, the benefits of financial freedom from the majority of creditors often outweigh the cons of filing. Additionally, knowing that you can hold on to your retirement accounts can help provide peace of mind when filing.
When you need assistance during this process, the team at Arnold Law Firm is ready to assist you. We understand these matters are incredibly serious, which is why our dedicated team will help make this process as simple as possible for you. Contact us today to learn more.
