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How Does Bankruptcy Affect Retirement Accounts?

When you go through a bankruptcy, you will likely relinquish some of your assets. In a Chapter 7 case, your assets are liquidated in order to pay your secured debts. Chapter 13 may not force you to sell your assets, but you will need to come up with an acceptable payment plan that you can stick to, or your creditors may be able to come back for your property. But you may be wondering how bankruptcy affects your other assets, such as your retirement accounts.

Can Creditors Get To My Retirement Funds?

No matter what type of consumer bankruptcy you file, Ohio allows certain exemptions to help you hold onto some of your property. In general, Ohio does not allow creditors access to funds in retirement accounts. These such accounts include (among others):

  • 401(k)s
  • 403(b)s
  • 457s
  • Roth IRAs
  • Teacher retirement plans
  • Pension plans

ERISA-Qualified Retirement Plans

The Employee Retirement Income Security Act (ERISA) was enacted to set the minimum standards for private retirement benefit plans. The government put these guidelines in place to protect employees’ retirement accounts and health plans. Some of the requirements for these plans include:

  • Providing plan information to employees on a regular basis;
  • Maintaining ERISA’s minimum standards for participation and vesting;
  • Providing a plan manager who will abide by ERISA-ordered fiduciary responsibilities; and
  • Adhering to ERISA’s minimum standards for accruing and funding of benefits.

ERISA protects retirement plan holders by:

  • Creating a grievance and appeals process plans need to offer to participants so they may apply for their benefits;
  • Allows participants to sue for breach of fiduciary duty; and
  • Guarantees payment of certain benefits through the Pension Benefit Guaranty Corporation (PBGC), should a defined benefit plan be terminated.

The above lists do not include all regulations; complete information is available on ERISA’s website.

ERISA typically does not control standards for government plans, non-U.S. plans, or plans created solely to abide by workers compensation, social security disability, or unemployment laws.

In general, creditors are not able to collect from your retirement account if it is an ERISA-qualified retirement plan. ERISA has an anti-alienation clause, which basically means creditors cannot collect judgments from your retirement plan, nor can they order your employers to give them your retirement funds.

It’s important to note that while employers are not required by law to provide an ERISA-qualified retirement plan, non-ERISA retirement plans will still be covered under Ohio’s exemptions.

Keogh Plans

Keogh plans, which are tax-deferred pension plans for self-employed individuals or unincorporated businesses, are protected, but only to a certain extent. The law says funds in a Keogh that weren’t deposited for the sole purpose of evading paying a debt are protected.

What Retirement Funds Are Not Protected

Any funds you withdraw from your retirement account are susceptible to creditors. Once the money leaves your retirement account, it becomes regular taxable cash, so creditors can try to collect it. When you are going through bankruptcy, it’s best that you don’t withdraw retirement funds. If you need to do so, try to keep the amounts minimal, so they can cover necessities such as living expenses, but not draw the attention of your creditors.

Call a Cleveland Bankruptcy Lawyer

Protecting your retirement funds in a bankruptcy is entirely possible; however, it may be a good idea to talk to an educated bankruptcy attorney to learn how. The attorneys at Cleveland Bankruptcy Attorneys have a significant amount of experience with the bankruptcy courts; we can go over the state exemptions in detail to help you understand what will and will not be protected.

For a free consultation of your case, (216) 586-6600, or contact us online.

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