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When considering whether or not bankruptcy is the right option for you, you may have carefully considered all possible risks. While you understand the difference between Chapter 7 and Chapter 13 and know that this process will impact your credit for a few years, you may not have considered how this will affect your retirement plans. As such, it’s essential to understand how bankruptcy will impact your retirement funds. Keep reading to learn more and discover how a Memphis, TN consumer bankruptcy lawyer can assist you during these formidable times.

Are My Retirement Plans Protected if I File for Bankruptcy?

Generally, all Employee Retirement Income Security Act (ERISA)-eligible accounts will be shielded during bankruptcy, with few exceptions. The funds in the account must remain in the account. If they are withdrawn, they can be taken during the filing process.

Protected accounts include:

  • 401(k)s
  • Roth, SEP, and SIMPLE IRAs
  • Money purchase plans
  • Defined-benefit plans

Tennessee also offers exemptions for teachers’ and state employees’ retirement plans and pensions.

What Else Should I Know?

It’s important to understand that there are always risks when filing for bankruptcy. Though the aforementioned accounts are protected, some are to an extent. For example, IRA and Roth IRA accounts have limited protection. If you have more than $1,512,350 in these accounts, the courts may order that excess funds be seized to pay creditors.

Similarly, the funds in the retirement account are exempt, but the benefits you receive as income from these accounts are not protected. For example, if you file for Chapter 7 bankruptcy and receive a monthly payment from the account, this payment will count towards your income during the means test. In Chapter 13, the courts will use this to help determine your unsecured debt.

You should note that if you put a considerable amount of funds into your retirement account, it could be flagged. This may be seen as an attempt to shield assets that would otherwise be vulnerable to liquidation.

How Can an Attorney Help Me?

When you want to file for bankruptcy, it’s in your best interest to enlist the assistance of an experienced attorney. Unfortunately, this can be an extremely complex process, so letting someone well-versed in the legal issues surrounding bankruptcy is vital.

Not only can an attorney help ensure all the necessary paperwork is complete and legally valid, but they can also advise you before you make any deposits or withdraws from your retirement accounts during this process.

Though your retirement accounts are protected, there are limitations. As such, enlisting the guidance of an experienced attorney is essential. At the Arnold Law Firm, our dedicated legal team can help you navigate this complex process. Contact our offices today to learn how we can assist you during a free consultation with a member of our firm.