Your personal 401(k), IRA account, pension plan, and all other retirement funds may be classified as exempt property during your bankruptcy proceedings. This is to say that your appointed bankruptcy trustee cannot seize and distribute them to your creditors. However, if you are referring to retirement funds you were made a beneficiary of, this may be treated differently under the United States Bankruptcy Code. Nonetheless, please read on to discover whether your inherited retirement funds can be protected from creditors and how a seasoned Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can help preserve what your loved one intentionally left behind for you.
Can my inherited retirement funds be protected in a Kentucky bankruptcy?
The chances of getting your inherited retirement funds protected in a bankruptcy case may depend on your relationship with the original owner of the account(s). For one, if you were the child, relative, or friend of the original owner, the Kentucky bankruptcy court may not consider these funds as your retirement savings but rather as your asset accounts. This is generally because you may withdraw this money at any time without a penalty.
It is worth mentioning that the timing of receiving this inheritance is also an important factor. That is, if you receive, or become entitled to receive, these retirement funds within 180 days after filing for bankruptcy, your trustee may count this towards your bankruptcy estate and subsequently use it to pay back your creditors. To avoid all this and rather promote asset protection, an original owner may set up a stand-alone retirement trust as the beneficiary.
Secondly, if you were the surviving spouse and named beneficiary of a retirement account holder, you may be afforded unique opportunities to keep these funds in your possession. For example, if you inherited your deceased spouse’s Traditional or Roth IRA account, you may roll these funds into your own personal IRA. That way, it may become an eligible exempt asset and receive the proper bankruptcy protections.
Can creditors access my inherited retirement funds outside of bankruptcy?
You must understand that federal bankruptcy protections are distinct from non-bankruptcy collection laws. For example, if the IRS filed a Notice of Federal Tax Lien before you filed for bankruptcy, this lien may survive the bankruptcy process, and it may end up touching your retirement accounts. However, this may not be the first thing the IRS goes after, but only if you have no other assets or exhibited flagrant conduct against them.
In another example, if you are undergoing divorce proceedings at the same time as bankruptcy, a Kentucky family court may issue a qualified domestic relations order (QDRO) to divide your Traditional or Roth IRA funds as part of your property distribution arrangement. On the flip side, if you are transferred these funds in a divorce settlement, you may, once again, not be granted the same protected status as if they were your own in your bankruptcy case.
For further legal guidance, please look no further than a competent Louisville, Kentucky consumer bankruptcy lawyer. When you work with Schwartz Bankruptcy Law Center, you can trust that you are in good hands. Schedule a consultation with us today.
