Is Your Pension Exempt in Bankruptcy?

TRI Writer • August 25, 2020

Years ago, Congress exempted most retirement accounts from bankruptcies. However, not all retirement funds are protected during bankruptcy. Whether or not your funds are protected will be determined by the exemptions set down by state bankruptcy code.

Can I Lose My Retirement Savings in a Bankruptcy?

Since different exemptions may apply to different accounts depending on the source of the funds, the specific wording of bankruptcy code, etc., it’s essential to discuss how bankruptcy exemptions apply to your case with an experienced bankruptcy attorney. In the meantime, here are a few standard guidelines:

Social Security: Social Security payments are protected during bankruptcy until they are deposited into your checking or savings account. Once they are deposited into your account, cash in bank accounts may not all qualify for an exemption. It is generally good to keep any social security deposits in a separate account, so the funds are not comingled. Keeping funds separate makes it easy to identify the source of any “social security” funds held in a financial account.

Pensions: If private company pensions qualify under the Employment Retirement Security Act of 1974 (ERISA), they are protected during bankruptcy. To qualify for protection, private company pensions must meet specific criteria contained in ERISA and the Internal Revenue Code. For example, government pensions, non-profit organization pensions, church pensions, and some partnership pensions are not ERISA qualified, but they may qualify by meeting Internal Revenue Code requirements and still be exempt during bankruptcy.  This area can be complicated.

401(k) Accounts: These investment accounts/retirement accounts are protected during bankruptcy.

Traditional IRAs and Roth IRAs: IRAs are protected, but there may be an exemption maximum. The exemption maximum for IRAs may change, so for the current exemption maximum that you can expect to apply to your traditional or Roth IRA, contact an experienced bankruptcy attorney.

Annuities: Some annuities are protected under the Internal Revenue Code. Protection for annuities depends on how the annuity was funded and the payment conditions in place. For example, an annuity set to start paying when the recipient turns 65 will be protected, but an annuity set to pay out lottery winnings will not be protected.

Don’t avoid bankruptcy because you fear for your retirement. Discuss your options with an experienced bankruptcy attorney. Don’t hesitate to call Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. We help good people through bad times.

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