What Retirement Accounts Are Protected in Bankruptcy?

You may be very close to reaching retirement age and finally gaining access to your retirement accounts’ funds. But at the same time, you may be on the brink of crippling financial debt, in which the only feasible avenue may be a bankruptcy declaration. You may find this to be poor timing, but you may rest a little easier knowing that most or all of your retirement accounts may be untouched via given bankruptcy protections. Without further ado, please continue reading to learn which retirement accounts are possibly protected during bankruptcy and how an experienced Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can help shield them from creditor intervention.

What retirement accounts can be protected during bankruptcy?

Generally speaking, some of the retirement accounts in your possession may be protected by the Employee Retirement Income Security Act (ERISA). This Act requires your employer to place your retirement contributions in a trust. Well, assets held in any trust type may not be considered under your direct ownership rights. Therefore, your appointed bankruptcy trustee cannot group your retirement assets with the rest of your bankruptcy estate. Ultimately, your retirement assets cannot be distributed to your outstanding creditors.

Specifically, employer-sponsored retirement plans covered by ERISA include 401(k)s, pensions, and profit-sharing plans; and the employee health and welfare benefit plans include health maintenance organization (HMO), dental and vision, and prescription drug plans, among others.

What protection level can I get for non-ERISA plans?

Say, for instance, that your employer has less than five employees working for them and is not required to sponsor a retirement plan per federal and state laws. Or, say that you are an entrepreneur who does not work directly under someone at all times. Well, in either scenario, you may have planned for retirement through an individual retirement account (IRA). But even though this is a non-ERISA-protected plan, you may still have a chance to salvage your contributed funds. This is thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

That is, the BAPCPA may offer a specific dollar amount of protection for IRA accounts, under circumstances such as a bankruptcy declaration. This amount may be adjusted periodically based on inflation trends. Of note, from April 1, 2022, through March 31, 2025, traditional and Roth IRAs were given up to $1,512,350 worth of protection. However, the laws surrounding this may be complex, and you cannot completely let your guard down when it comes to the threat of infringing creditors. So we advise you to speak with your hired lawyer concerning all of your non-ERISA-protected plans.

If you have gotten this far, we now ask you to reach out to a skilled Louisville, Kentucky consumer bankruptcy lawyer to schedule an initial consultation. Overall, we strongly encourage you to retain legal representation from Schwartz Bankruptcy Law Center for all your bankruptcy needs.