Peter R. Scribner, Esq. ATTORNEY AT LAW
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Bankruptcy and retirement: Get the facts

When you're growing older, the one thing you want to guarantee is that you can have a comfortable retirement. You've worked for many years, and you deserve to be able to relax as you reach your golden years. Sadly, if you've lived beyond your means or are in a position where your expenses outweigh your income, you could face bankruptcy before or during retirement.

Many people put off filing for bankruptcy because of the fear that their retirement accounts will be affected by it. The reality is that you may not have to worry about your retirement being affected by bankruptcy at all.

If you file for bankruptcy before retirement, try Chapter 7

Chapter 7 bankruptcy is special, because the money in your retirement accounts can't be touched by creditors. Chapter 7 is the most common type of bankruptcy, known as liquidation bankruptcy, and will have any nonexempt assets sold to pay off your debts. Fortunately, money in retirement accounts are protected. These accounts may include:

  • 401(k) plans
  • 403(b) plans
  • Defined benefit plans
  • Profit-sharing plans
  • 457(b) plans
  • Keogh plans

It is a good idea to talk to your attorney if you plan to file for Chapter 7 bankruptcy, so you can make sure your specific retirement plan is protected.

What happens if you have to file Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a repayment plan. It's more complex, but the money in your retirement accounts won't be used to calculate your monthly fees.

Are there any accounts that won't be protected against creditors?

It depends on your situation. For example, SEP-IRA, Roth IRA and Simple IRAs are usually exempt from creditors, but there may be limits that apply. For IRAs, the current limit is $1,362,800 until April 1, 2022. This amount may be adjusted, so it's a good idea to chat with your attorney about the current limits and if they believe that your IRAs are at risk if you file for bankruptcy,

What happens if you file for bankruptcy after retirement?

Filing bankruptcy after retirement isn't as advisable, because the money you have is more readily accessible to creditors. Anything more than what you need for the necessities might be pursued by creditors in that case. That's why it's a smarter choice to file before retirement if you have the opportunity. Your attorney can talk to you more about bankruptcy options and how bankruptcy may affect you whether you're retired or retiring soon.

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Peter R. Scribner, Esq.
1110 Park Avenue
Rochester, New York 14610

Phone: 585-800-9616
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