If you are considering filing bankruptcy, you likely want to know whether your 401k is exempt from bankruptcy. Before you use your retirement benefits to pay off your debt, you should understand how bankruptcy law treats retirement and other benefits. Some property is exempt in bankruptcy, meaning creditors cannot reach it. Some, but not all retirement accounts are exempt from bankruptcy.
Pension Plans and Exemptions
In most cases, 401k plans are exempt from bankruptcy. That means you can file bankruptcy and be relieved of the debts absolved in your bankruptcy and still keep your retirement account. 401k and other pension plans meet ERISA requirements generally are not included in the bankruptcy estate. Discuss your retirement accounts with an attorney if you are uncertain whether or not they meet ERISA requirements and are exempt from being included in your bankruptcy.
What is ERISA?
ERISA stands for the Employee Retirement Income Security Act. It was passed by the federal government in 1974 to set a minimum standard for retirement and health benefit plans for the private sector. ERISA has been expanded to cover health benefits as well.
IRA Accounts - Are They Exempt?
Unlike 401k retirement accounts, IRAs are not ERISA qualified plans, so they may not be exempt from bankruptcy. IRA plans may be exempt if they are set up to support dependents. State law and particular plans may vary, so it is important to consult an attorney to be sure whether your plan is exempt.
Getting Legal Help
If you are contemplating bankruptcy due to financial difficulties, you should consult an experienced bankruptcy attorney in your area. An attorney will help you through the emotionally and technically difficult process by advising you of your options and rights, handling all of your legal filings, standing up for you in court and helping you understand the extent of your exemptions.
