Clients often ask of a Rosemont bankruptcy lawyer, can I keep my 401(k) and other retirement accounts free and clear when filing bankruptcy?In a Chapter 7 bankruptcy case, your retirement account, 401(k), pension, profit-sharing is protected from creditors and from the trustee provided that that account is ERISA-qualified. ERISA-qualified is a particular type of account that remains protectable. What I tell my clients is this: if you can’t touch that money without a penalty, then it is not likely it’s protected. If however, you cannot touch that money without paying a penalty, either a tax or some type of forfeiture, then that retirement account is going to be protected from the trustee. This is part of the bankruptcy basics that the trustee must honor.
I have had many clients who have had large amounts of money in their 401(k), pension or profit sharing and they were able to keep those funds free and clear while they eliminated all of their debt in Chapter 7 bankruptcy case. I have also had clients that made the mistake of liquidating their retirement account, putting that money towards bills and trying to bail out of debt and then wound up filing for bankruptcy anyway. I wish those clients would have contacted me or a skilled bankruptcy attorney prior to speaking to me because they would have known that they could have protected that nest egg. They did not have to touch that 401(k), pension, profit-sharing or other retirement account and they would have been able to file Chapter 7 bankruptcy and protect it all.
Unfortunately, once it’s gone, once it’s done, there’s nothing I can do about it other than let the client know that in the future, do not touch pension, profit-sharing or 401(k) in an effort to pay bills when you have the option of filing a fresh start bankruptcy case.
In a Chapter 13 bankruptcy case, debtors get to keep all of their property no matter what it is; whether it’s houses, vehicles, pension, profit-sharing, furniture, jewelry, electronics because they are repaying the debt over time. So in either Chapter of the bankruptcy code, 401(k) s are going to be protected. The trustee just wants to make sure that that 401(k) is ERISA-qualified. Once the trustee is satisfied that the retirement vehicle is ERISA-qualified, the trustee is going to look no further and he or she is going to make a finding of no assets in your individual bankruptcy case or joint case.