If you’re thinking about filing for bankruptcy in Texas, it’s critical that you understand how filing may impact your retirement accounts. Depending on what accounts you have and how much you have in them, your money may be completely protected, partially protected, or not protected at all. Here’s what you should know.
Which Type of Bankruptcy Should You File If You Have Retirement Accounts?
Both of the primary types of bankruptcy filed by Texas consumers — Chapter 13 and Chapter 7 — offer some protections for retirement accounts that haven’t been withdrawn. It’s often more important to take into account other circumstances that may impact which type of bankruptcy is a better choice.
For example, individuals on a fixed income may need to consider a Chapter 13 bankruptcy to ensure that their monthly payment isn’t more than they can afford. Or, individuals with a high amount of unsecured debt and few assets may want to choose a Chapter 7 if their retirement accounts are protected from liquidation.
Protected Retirement Accounts
Most ERISA-qualified retirement plans cannot be liquidated, with a few exceptions. Funds in these accounts are protected regardless of how much money is in the account:
- 403(b)s and 401(k)s
- Money purchase plans
- Profit sharing plans
- Defined benefit plans
Unprotected Retirement Accounts
Some retirement accounts offer absolutely no protection from creditors, while other retirement plans offer limited protection. Traditional and Roth IRAs fall under the latter and protect funds in the account up to $1,362,800 per person — anything over this amount is used to satisfy debts in a Chapter 7 bankruptcy or counted as a resource when filing a Chapter 13. The cap on IRAs adjusts automatically every three years to account for cost of living increases and inflation. Savings accounts, checking accounts, CDs, and other liquid assets offer no protection.
When to Call a Texas Bankruptcy Attorney
Don’t wait to contact an experienced Texas bankruptcy lawyer if you are filing bankruptcy and have one or more retirement accounts. If you can, it may be a smart strategy to move funds from one account to another or to open a new account — e.g., if you have retirement funds in your savings account, you’ll likely want to put them in an IRA or 401(k) before you formally file for bankruptcy. Your lawyer can help you determine how to best protect your retirement funds. Call Sims Bankruptcy Law, PLLC today for a consultation at (469) 751-7467 or (254) 304-7161.