Bankruptcy and Retirement Accounts
What happens to your 401(k) & retirement accounts when filing for bankruptcy in New York City
The purpose of personal bankruptcy is to give you a fresh start by discharging most of your debts. While some debts are not dischargeable, such as student loans, alimony, and child support, most debts are wiped away in bankruptcy.
To do so, some or most of your assets are sold in order to pay some money to your creditors. You are allowed to keep some of your assets, but the bankruptcy trustee sells the rest.
If you have retirement accounts, the question becomes whether these accounts must be liquidated to pay creditors.
Are retirement accounts protected from creditors?
Pensions and 401(k) plans are generally administered by an employer for the future benefit of the employee and they are set up in such a way as to be protected from creditors. Thus, with one exception, these accounts do not become part of the bankruptcy estate and are not subject to liquidation to pay creditors.
The exception is a retirement account set up for a self-employed individual. This account may be subject to liquidation, so if you are self-employed you should seek legal advice before filing for bankruptcy.
Individual retirement accounts (IRAs)
Similar to retirement accounts of self-employed individuals, IRAs are also subject to liquidation and become part of the bankruptcy estate. One way to protect part of your IRA is to claim it as exempt property. For example, if you claim federal exemptions instead of New York exemptions, you can exclude $1,150 plus up to $10,825 of any unused portion of your homestead exemption to exempt your IRA funds from the bankruptcy estate.
Meet with an experienced NY attorney to discuss your IRA, pension, or 401(k) and bankruptcy
If you live in New York City and think bankruptcy may be a viable option for you, contact the Law Office of Gregory Messer online or at 718-717-2368 to schedule a free initial consultation. Our office is located across the street from the U.S. District Bankruptcy Court in Brooklyn and is close to the Borough Hall and Court Street subway stations. We serve residents throughout Brooklyn, Bronx, Manhattan, Staten Island and Long Island.
To ensure every client’s filing receives the attention it deserves, we are an appointment-only law firm with flexible hours adjustable to fit your needs.