Is My Retirement Plan Covered During Bankruptcy?

If you have assets locked way in retirement plans, such as 401Ks, Roth IRAs, certificates of deposit, or other long-term investment vehicles, your assets may or may not be protected from creditors during bankruptcy reorganization. Your attorney can discuss not only how to manage your secured assets to optimize protection against creditors but also how to develop a post-bankruptcy retirement plan that gives you some legal room. Strategize conservatively based on your reduced credit rating and borrowing capacity.

If your retirement monies are locked up in a complicated financial transaction or maintained in an account overseas, the bankruptcy law pertaining to your state may get quite complicated. Don't hide assets from your trustee, or the discharges for unsecured debt that you have managed to acquire may ultimately be revoked.

If you have significant retirement assets saved up, it may make more sense to apply for Chapter 13 bankruptcy and to use your five-year reorganization plan intelligently to get creditors off your back and maintain growing retirement accounts.

What if you are near to retirement age at the time of your bankruptcy filing? In extraordinary circumstances, some tough debts may be expungable. For instance, if you owe student loans (which are normally not dischargeable), and you are suffering from a severe illness, the bankruptcy court may show mercy in this regard and dispatch those loans. However, don't expect to get out of owed taxes, alimony payments, student loans, and other “top priority” credit trouble just by filing for bankruptcy.

A financial planner can advise you about how to set up a bankruptcy to reset your retirement plan. Living according to this budget may involve adopting a more frugal lifestyle, canceling some trips, or deferring your age of retirement. But hopefully the resolution of your unsecured debt and the interest on that debt can go a long way towards helping your finances work more synergistically to prepare for retirement.

Moreover, when you factor in your potential Social Security and Medicare benefits and other future asset streams (e.g. the collecting of inheritances), you can actually use bankruptcy as a springboard for a more stable retirement platform.