After working and saving for your golden years, a sudden illness forces you to quit work. The medical bills start piling up and creditors begin calling. Filing for bankruptcy stops the harassment, but what if you lose your nest egg? Unfortunately, this scenario is more common than we would like. If you are facing an uncertain financial future, do not wait. A lawyer who is experienced in bankruptcy and consumer protection can answer your questions regarding investments and whether filing for Chapter 7 or Chapter 13 bankruptcy is right for you.
Which Type of Retirement Funds Are at Risk When Filing for Bankruptcy?
ERISA (Employee Retirement Income Security Act of 1974) is a federal law that protects individuals participating in the retirement plans who are having financial difficulties. Traditional IRAs, Roth IRAs, SEPs, Simple IRAs, 401Ks and pension plans fall under this regulation. This law (along with Indiana state exemption laws) make your accounts off-limits to creditors during bankruptcy.
Are All My Investments Exempt?
Most retirement plans are exempt, with one caveat. If you receive a distribution payout from a fund, or decide to take an early withdrawal, any of this money that you have on hand when you file for bankruptcy is a possible asset of the bankruptcy estate. The distributed funds lose federal and state protection in bankruptcy. This means that a Trustee could take some of the funds on hand to repay a pro-rata share to your creditors. Delay any fund distribution if you are planning to file for bankruptcy. It protects the account by keeping it exempt.
Can the IRS Take My 401K for Back Taxes?
While ERISA protects your retirement funds from creditors, it doesn’t protect them from the Internal Revenue Service. If you owe back taxes, the IRS can place a levy on ERISA qualified plan funds. More specifically, the IRS has the right to take any retirement account which is vested. The moral of the story is pay the outstanding taxes sooner rather than later. A bankruptcy professional can help you determine the best way to handle the situation.
I Have an Employee Stock Payment Plan. Is It Exempt?
ERISA does not protect an ESPP, company profit sharing plan and individual stocks. The government views them as perks used by companies to retain their workforce. These accounts can be seized by the Trustee and used to pay off creditors, if not otherwise exempt.
Sawin & Shea – Indianapolis Bankruptcy Attorneys
Before you withdraw money from your retirement accounts to settle your debts, discuss your options with a bankruptcy professional. Let the Indiana bankruptcy attorneys at Sawin & Shea help you form a game plan to protect your investments. We have experience in bankruptcy procedures. Please do not hesitate to call us today at 317-759-1483 or send an email for a free consultation. We are ready to help.
