Are Retirement Accounts Protected from Bankruptcy in Arizona?

are retirement accounts protected from bankruptcyRegardless of how old you are, saving for retirement should be on your mind. There are many ways in which people plan retirement beyond paying into Social Security. This can include company or government pension plans, 401(k)s, IRAs, and individual brokerage accounts.

However, you may wonder what will happen to the money you have managed to save for retirement if you need to file for bankruptcy. Today, we want to look into what filing for bankruptcy means and how it will affect your retirement savings.

What Can Filing For Bankruptcy Do?

Bankruptcy protection is one option available for people to get out from under debt they have accumulated and are unable to pay off. People often end up filing for bankruptcy due to:

  • Medical expenses
  • Reduced income
  • Job loss
  • Credit card debt
  • Divorce proceedings
  • Unexpected expenses
  • Student loan debt
  • Utility payments
  • Foreclosure
  • Bad budgeting and overspending

Sometimes financial troubles are due to a person’s poor choices, but more often than not, it is a combination of things that are out of a person’s control.

The two most common types of bankruptcy are Chapter 7 and Chapter 13.

  • Chapter 7 is the most common form of bankruptcy and is the best option for people who do not have a regular income. This type of bankruptcy typically discharges most of your debt and requires you to give up many of your assets, with the exception of assets that are exempt by law.
  • Chapter 13 works better for those who have a steady income and allows them to reduce and restructure their debt into a payment plan that typically lasts 3 to 5 years.

You should always speak with an Arizona bankruptcy attorney when deciding which route is best for your individual circumstances.

How Are Retirement Savings Treated?

Many people dig into their retirement savings in an attempt to get out of debt. This can have its benefits, but only if a person is able to get out from under the debt as well as have time to build their retirement savings back up. If they pay off just part of their debts with retirement savings but are still drowning in debt, they essentially threw money away.

Why is that?

Because, in most cases, retirement savings are protected. Congress changed the bankruptcy laws in 2005 and now nearly all ERISA qualified accounts are protected during bankruptcy proceedings. This includes:

  • 401(k)s
  • 403(b)s
  • IRAs (some limitations – $1,283,025 per person)
  • Keoghs
  • Defined-benefits plans
  • Money purchase plans
  • Profit-sharing plans

The protections for retirement plan savings only apply to money that has not been withdrawn. If you are already at an age where you are taking monthly payments from your retirement plans, then the monthly amount will be added to your income considerations for Chapter 7 and Chapter 13.

Anything that is not covered under ERISA protections will be considered fair game with the courts during bankruptcy proceedings. This includes regular savings accounts, traditional stock brokerage accounts, and other investment accounts.

You can see a list of all Arizona exemptions here. Contrary to what many people believe, people who go through bankruptcy do not lose all of their property. The purpose of bankruptcy is to give people a chance to get back on their feet and start again.

How An Attorney Can Help

Bankruptcy is not an easy process to go through and you should not do it alone. A qualified Arizona bankruptcy attorney will be able to help you start the process, gather a list of all assets and debts, and deal with each individual creditor. Having an advocate can give you peace of mind.

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