Blog > 2022 > January > How To Protect Your Retirement Account
If you file for bankruptcy, could you lose your retirement plan? Here’s a question we get all the time from potential bankruptcy clients who are close to retirement. Our clients will say, “I met with an attorney, and they told me they can protect my retirement account as long as they are ERISA qualified. What does this mean?”. If you’ve found yourself in a similar situation with a similar question, read on to find out how to protect your retirement account.
Suppose you currently have a retirement plan with your employer. In that case, it is critical to ensure that you’ll be able to keep your pension and retirement plan funds should you decide to file for bankruptcy. Indeed, in most cases, this will be the case. However, there are some limitations, and it’s essential to know about them so that you don’t make a move you’ll regret.
First thing’s first. Know this: Any property you need to work and live on will be protected when you file for bankruptcy in almost all scenarios. In other words, you won’t necessarily lose all you have. Many people don’t understand this and assume the worst.
You likely won’t lose your retirement because of the Employee Retirement Income Security Act of 1974, also known as ERISA.
The Employee Retirement Income Security Act of 1974 set standards for retirement and other voluntarily established plans in the private industry. In 2005, the act was updated. Today, one of the ERISA standards is that creditors cannot take ERISA-qualified retirement accounts.
Which retirement plans are ERISA-qualified?
Simply put, ERISA qualification means that your former employer contributed and sponsored your retirement account. These types of accounts include deferred compensation, 401ks, and at times, even life insurance policies.
However, these are the exceptions to the rule that ERISA-qualified accounts won’t be affected by bankruptcy, and this is where having a reasonable bankruptcy attorney on your side comes into play. Your lawyer will be able to first look at your retirement account and tell whether or not it is ERISA-qualified. Next, they’ll examine your plan for possible subjugation to limitations.
While it’s true that most retirement accounts will be protected during bankruptcy, any funds that you’ve already withdrawn from a retirement account are not covered.
Therefore, if you’ve already started receiving a monthly pension or payouts from your retirement plan, these funds will be subject to the terms of your bankruptcy. In some cases, your income from retirement will even help determine how much you can afford to pay on unsecured debts.
If you consider filing for bankruptcy, finding the right bankruptcy lawyer is critical. Determining whether or not your retirement account will be protected if you file is one of the most important things they can do for you.
For more information about retirement and bankruptcy and help set yourself on the road to financial freedom, please give SM Law Group, APC, a call today.
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