Bankruptcy & Your Retirement Accounts

Question: After my divorce and a failed business I need to file bankruptcy, but I have money in an IRA and in a 401(k) that I don't want to touch. I got divorced after 17 years of marriage because my wife's mental problems were too much to handle. She was always drinking and she had bi-polar so she was almost impossible to deal with. But the divorce wasn't cheap because we had to split some assets, some debt and because we have 4 kids, so there was a custody battle.

Then I started a business that failed. I sunk all my money into it and I even got my brother and sister to invest. But it never really made money after our first year in business. So I owe some loans and credit card debt for it and I'm starting to harassing phone calls from some nasty debt collectors.

But my question has to do with the IRA account and the 401(k). I'll need that money for retirement and I don't want to take it out and I don't want the bankruptcy court to take it. I really that retirement cash and I know that I'm going to file bankruptcy, but I want to know about those retirement accounts. What can I expect when I go bankrupt?

A.C. in Cumming, GA

Answer: Retirement accounts are exempt when filing bankruptcy. Your Individual Retirement Account (IRA) and 401(k) will not impact your bankruptcy filing, whether you file a Chapter 7 or a Chapter 13. Retirement accounts are given special status under the bankruptcy laws.

Retirement accounts, generally, cannot be taken by the bankruptcy court or a bankruptcy trustee. And they are not counted for the means test, so they are not counted as "income" or as a potentially "attachable" asset. We have had clients who were able to file a Chapter 7 and had hundreds of thousands of dollars or even millions of dollars in retirement accounts.

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