Will I lose my retirement savings in bankruptcy?

Retirement accounts safe in bankruptcy

Most forms of retirement savings are safe in a bankruptcy filing.

Either, your retirement assets are not property of the estate or  they can be claimed exempt from the claims of creditors.

The only good thing, in my view, to come from the 2005 amendments to the Bankruptcy Code was a bankruptcy exemption of over a million dollars for IRA’s.

ERISA plans excluded from estate

An employee’s interest in pension plans that are qualified under ERISA (the federal law on pensions) are not property of the estate:  the debtor doesn’t even have to exempt them in bankruptcy.

If an asset is not property of the estate, the trustee can’t cash it in for the benefit of creditors.

Exemptions protect other retirement savings

Retirement savings that are property of the estate, such as some Keogh plans and IRAs, can be claimed as exempt up to a million dollars or more under §522(n) of the Bankruptcy Code.

This exemption was added to the bankruptcy code in the 2005 amendments and is available to residents of any state, regardless of the state law exemptions.  But another way, the fat IRA exemption is available to residents of states that forbid the use of the other bankruptcy exemptions in cases filed by their residents.

State exemptions also apply

These provisions of federal bankruptcy law supplement, don’t replace, exemptions for retirement plans that may be found in state law.  California, for example, has a very broad provision protecting the debtor’s interest in private retirement plans found at CCP § 704.115.

All of these provisions have in common that there must be a plan involved.  That means an account referencing  the enabling statute or held by a pension trustee.

It is not sufficient to have mentally earmarked some asset or some, otherwise ordinary bank account as being your “retirement savings.”

Image courtesy of Tanel Teemusk

About the Author
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.