If you are considering bankruptcy, you likely have a lot of questions. Will the process take away all of your assets and savings? What about retirement?
If you are older, you may be coming up on the time when you need to rely on retirement income and Social Security. Your savings will help pay your bills while you enjoy finally having time away work. Fortunately, you do not need to worry about working until you are 80 years old. Most of your retirement savings will be safe in bankruptcy.
To discuss how bankruptcy changes your finances and how it may impact your retirement savings, call a bankruptcy lawyer at Kademenos, Wisehart, Hines, Dolyk & Wright Co. LPA at (419) 625-7770. We will take a look at your situation and explain your best legal options to improve your financial situation.
Most Retirement Savings Is Safe From Bankruptcy
If you are considering filing for bankruptcy, you may be relieved to hear that many types of retirement savings are excluded from your estate or are exempt from your creditors’ claims. If you have a 401(k) or other profit-sharing or defined benefit plan, these are safe in both Chapter 7 and 13 bankruptcies. Also, in a Chapter 13 bankruptcy, they will not impact your payment plan.
If you have a type of IRA, up to a certain amount is exempt from creditors. As of 2013, more than $1.2 million is safe from creditors, though this amount changes based on the cost of living.
However, if your retirement savings is simply in a typical savings account or other investments, this could present an issue. Assets that are not in typical retirement accounts may not be considered retirement savings in bankruptcy, even if that is what you intended them for.
Retirement Distributions or Withdrawals May Be at Risk
If your retirement account already pays out to you or your chose to make a withdrawal, then distribution may be a different matter. For Chapter 7 bankruptcy, retirement savings you have in your bank account or receive on a monthly basis may be counted as income. Any amount determined to be above what you need to pay for the basics could be claimed by creditors.
During Chapter 13 bankruptcy, your retirement distributions or withdrawals may be included in your income calculation. It depends on whether the money is considered part of your regular monthly income or not.
Your Social Security is Semi-Protected
A number of federal laws protect your Social Security income or disability payments. Creditors cannot lay claim to your future distributions. However, once you receive this income and it is in your account, creditors can make a claim prior to any bankruptcy proceedings. Creditors can even pursue wage garnishment, though a certain amount of your Social Security or disability income is always protected in your bank account.
In regard to Chapter 7 bankruptcy, you typically do not have to include your Social Security benefits in the income calculation. The means test is determined based on your employment income excluding any Social Security. For a Chapter 13 bankruptcy, you usually do not have to include it in the income calculation when determining your payment plan.
You need to be careful about Social Security in bankruptcy. Congress and most courts have repeatedly decided to protect Social Security income, even in regard to bankruptcy. That does not mean a bankruptcy trustee will not try to include it. You can voluntary choose to include this income. However, you also may have the right to exclude and protect it. Always speak with an experienced bankruptcy attorney about your rights and options before making a decision.
A Bankruptcy Lawyer Will Protect Your Retirement
Bankruptcy can be the right choice when you have far more debt than you are capable of repaying. Chapter 13 bankruptcy gives you the ability to restructure your debt and pay it off in three to five years, while Chapter 7 bankruptcy can wipe your slate clean. In either case, your retirement savings is likely safe.
You should speak with an experienced bankruptcy attorney from Kademenos, Wisehart, Hines, Dolyk & Wright Co. LPA about your options. Before deciding to go down this road, you need to know how it will change your monthly finances and impact your financial future, particularly in retirement. Contact us today at (419) 625-7770 to schedule an initial consultation.