Filing for bankruptcy can affect your property, but many retirement benefits have strong protection. Whether an account remains protected depends on its type and whether it still satisfies the tax rules that make it exempt. A local bankruptcy attorney can review your savings before you file and determine which retirement benefits are protected or vulnerable in a bankruptcy.
At Werner, Hoffman, Greig & Garcia, we weigh bankruptcy options against your long-term financial security. Retirement savings often represent decades of work, so we identify the protections that apply to each account before you file.
Which Retirement Accounts Does Bankruptcy Protect?
Federal bankruptcy law protects many qualifying retirement funds, while some retirement assets remain vulnerable. 11 U.S.C. § 522 sets out exemptions for qualifying retirement funds in accounts that qualify for tax-exempt status under the Internal Revenue Code. Most 401(k) plans, qualified pensions, and eligible individual retirement accounts fall under that protection.
Employer plans that ERISA governs usually receive especially strong treatment because a qualified plan must restrict the assignment of benefits. Social Security income has its own federal protection under 42 U.S.C. § 407.
Retirement Assets That Stay Vulnerable
In bankruptcy, some retirement assets remain vulnerable because not every account receives the same protection. In Clark v. Rameker, the United States Supreme Court held that money in an inherited individual retirement account does not count as retirement funds for the federal exemption because the person who inherits it can spend the money long before retirement.
Withdrawals create a second risk. Once money leaves an account that bankruptcy law protects and mixes with your other funds, its protection can change. Bankruptcy law may treat nonqualified deferred compensation differently from a tax-qualified plan.
How the Law Broadens Retirement Protection
The law can provide broader protection for retirement assets in bankruptcy, including benefits that federal law may leave vulnerable. Under Florida Statutes § 222.21, retirement funds do not stop being exempt after the owner dies when they pass by direct transfer or eligible rollover, and that includes an inherited individual retirement account. The exemption also remains in place after an alternate payee receives an account through a divorce.
Ask Werner, Hoffman, Greig & Garcia About Protected and Vulnerable Retirement Benefits in Bankruptcy
Before you move or withdraw retirement money, find out how bankruptcy law treats that specific account. Moving or withdrawing funds without legal advice can reduce protections that otherwise apply to the account.
Werner, Hoffman, Greig & Garcia can review your accounts and explain which retirement benefits are protected or vulnerable in a bankruptcy. We offer a free initial consultation, so call our office to discuss which protections may apply to your savings.
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About the Author
Adam Werner is a partner and practicing attorney at WHG. He specializes in personal injury cases, workers’ compensation claims, and veteran disability benefits. He routinely writes about personal injury and workers comp topics for the Werner, Hoffman, Greig & Garcia blog.
