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Will Bankruptcy Affect My Retirement Money?

Before changes were made to the bankruptcy laws on October 17, 2005, there were rumors abound that it would become very difficult for the average person to file bankruptcy. 

Did that happen? 


Were some laws introduced that were unfriendly to the consumer? 


Overall though, the hysteria that was caused by the law change was massively overblown. The average person can still file bankruptcy and get a tremendous amount of protection from creditors.

In fact, one of the major changes to the bankruptcy laws was extremely consumer-friendly. That change had to do with retirement accounts.

A Few Exceptions

Prior to the change, retirement accounts were, in many cases, an asset that could be taken by a bankruptcy trustee and distributed to creditors. 

With a few notable exceptions, the 2005 law change protected almost all retirement accounts from being taken in a bankruptcy. 

Most retirement accounts are either in the form of a 401K or an IRA. And while there are many different forms of IRAs and 401Ks, and they are almost all now protected under the bankruptcy laws.

Some notable exceptions to the general rule that retirement accounts cannot be touched during a bankruptcy include some types of annuities and inheritance IRAs

Inheritance IRAs are generally retirement accounts of someone else that passed away that you were the beneficiary of. So, in those instances, it wasn’t you that put the money into the account.

Annuities are tricky, with rules varying based on type. If you have an annuity, make sure that you ask your attorney if it is protected under the law. After getting the annuity plan documents, your attorney should be able to answer that question.

Is There A Limit to How Much Money Can Be Protected?


Whether you have a millions of dollars or thousands of dollars, there are no limits to the amount that can be protected in a retirement account. 

However, there are limitations on how much money can be transferred into a retirement account within a certain time frame prior to filing. So, you will want to tell your attorney if there were any large sums of money put into a retirement account within a two year period prior to filing the case. 

Generally though, in our experience, clients seem to be taking large sums out of their retirement account to try to pay their bills prior to filing for bankruptcy, not putting large amounts of money into the account.

As you will hear time and time again in these blog posts, all of the bankruptcy lawyers at Steidl and Steinberg are extremely knowledgeable about all things related to bankruptcy including retirement accounts. So, if you have questions on this or any other bankruptcy-related subject, don’t hesitate to call!

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