Bankruptcy Lawyer Bryan W. Stone answers the question “Are my 401k and IRA protected in bankruptcy?”
Deciding to file for bankruptcy protection is an important decision for anyone and requires careful consideration, as there are many factors at play. This is especially true for senior citizens who have some unique concerns and can be impacted in different ways than younger individuals with decades left to work and earn money. To learn more about bankruptcy and how it can impact senior citizens, keep reading.
Something that almost all seniors considering bankruptcy want to know about is what happens to their Social Security should they decide to move forward and file. The good news is that federal law protects your Social Security money. That means that in the event of bankruptcy, creditors cannot deprive you of that guaranteed stream of income. However, experts say that seniors who are eager to protect this money should be careful and keep it in a separate bank account. If the money is co-mingled with other money, then creditors could garnish the account and take money that might otherwise have been protected.
What happens to retirement accounts?
Thankfully, seniors can breathe a big sigh of relief that federal bankruptcy law exempts most retirement assets. This means that things like 401(k)s or pensions are excluded from the assets available to creditors during a bankruptcy and are thus protected. IRAs are treated somewhat differently as federal law has a cap on exemptions, currently a little over $1 million. Beyond that, the assets may be able to be tapped by creditors, though that will depend on your state’s exemptions.
Something else to keep in mind is that your income from a pension might cause problems in terms of filing a Chapter 7 liquidation bankruptcy as you must meet certain income requirements. If your income is too high for a Chapter 7, you may then be forced to file a Chapter 13 repayment plan bankruptcy.
Are medical bills wiped away?
The number one cause of bankruptcy for filers over age 65 is medical debt. The good news is that medical bills are classified as unsecured debts and thus are fully dischargeable in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, these bills will likely not disappear immediately, you will instead enter a payment plan and, depending on your monthly income and total debts, may be required to pay a share of these and other unsecured debts.
Does it make sense to file for bankruptcy as a senior?
The bottom line for seniors, and ultimately for all those considering bankruptcy, is that the process makes the most sense if you have something worth protecting. That something could be your income or future inheritance or property or some other asset. If you have these things and don’t pay your bills, your creditors could seize these assets. Bankruptcy can stop that from happening. However, if you’re already judgment proof and there is nothing for a creditor to take and you believe you will remain judgment proof in the future, it may not make sense to file for bankruptcy.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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