How is an IRA Protected by Bankruptcy?

If you think you might be facing bankruptcy, you need to know whether your IRA is protected by bankruptcy law. You will need to look to state law to discover whether your IRA plan will be protected if you decide to file for bankruptcy.

IRA Protection and State Law

While 401k plans and other pension plans which meet ERISA requirements are not included in the bankruptcy estate for most cases, IRA plans are not ERISA-qualified. That means, protection of your IRA account depends on state law and other federal law. Many states offer some form of IRA protection, but the extent of any protection can vary widely. It is best to consult an attorney about your specific assets and accounts in contemplating bankruptcy to learn whether your accounts can be protected and to what extent. There is likely a limit to the dollar amount and annual investment amounts.

IRA Protection and Federal Law

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 expanded federal law to provide some protection for IRAs with limits on the dollar amount. Even if your IRA is protected by the bankruptcy court, if a creditor decides to sue you outside of bankruptcy, those assets may still be accessed. Consulting an experienced attorney is the best way to make sure you do what is best for your financial future.

Getting Legal Advice

Bankruptcy is a difficult thing to go through emotionally and physically. An attorney can help you sort out the difficult legal process, handling your paperwork, notifying your creditors, advising you of required documentation and local filing requirements and advocating for you in court and with your creditors. Because bankruptcy attorneys handle the courts daily, they are in the best position to advise you on your financial matters.