Deciding how to address overwhelming debt can be a challenge, especially for Tennessee residents who are approaching retirement age. Understanding how a Chapter 7 bankruptcy filing will impact retirement savings is a top priority for many consumers, and an important part of the decision-making process. The following information is offered to assist consumers in understanding how their retirement savings will be impacted by bankruptcy.
When it comes to employer-funded retirement accounts, there is a federal law known as the Employee Retirement Income Security Act (ERISA) that was put into place to protect workers from losing their hard-earned savings. According to the ERISA, 401(k) accounts and other retirement vehicles that are employer sponsored are protected from loss during a personal bankruptcy. When collecting information on retirement savings, be sure to note which type of account is used.
As part of Chapter 7 bankruptcy, the filer is asked to list all assets and debt, including retirement savings. Certain types of assets will be liquidated by the bankruptcy trustee, and the proceeds will be used to pay creditors. However, a 401(k) account is exempt from that process, and is a protected investment. That means that the funds held within a 401(k) will remain available for use in retirement.
An exception lies in debt owed to the Internal Revenue Service. When a consumer owes back taxes, the IRS can levy retirement funds to pay that obligation. For those in Tennessee who have additional questions on how to protect their retirement from loss during Chapter 7 bankruptcy, the best way to move forward is to schedule a consultation with a bankruptcy attorney who can address those concerns.
Source: fool.com, "Can Creditors Seize My Investments During Bankruptcy?", Sarah Szczypinski, July 19, 2017