Is My 401(k) Protected If I File for Bankruptcy?

If you are considering the possibility of filing for personal bankruptcy and you currently have an employer-sponsored or solo 401(k) retirement account, you may have concerns about those assets and whether you may be required to turn them over to the bankruptcy trustee if you file for bankruptcy. Generally speaking, retirement assets are largely exempt in any type of personal bankruptcy filing, but it is important to understand how both state law and federal law apply to protect 401(k) retirement accounts in Florida. In short, you should not expect to lose any of your retirement assets held in a 401(k) account, and our South Florida bankruptcy lawyers can explain why in more detail below. If you still have questions, do not hesitate to get in touch with our firm for assistance.

Florida Law and Federal Law Prevent Liquidation of Your 401(k) Assets in a Chapter 7 Bankruptcy

Whether you have an employer-sponsored 401(k) account through your employment with a for-profit employer, or you have a solo 401(k) account, the assets held in your 401(k) are likely to be exempt under federal and/or state law when you file for Chapter 7 bankruptcy.

The federal Employee Retirement Income Security Act (ERISA) exempts employer-sponsored retirement accounts in personal bankruptcy cases and applies to Florida bankruptcies. You also have protection, even for a solo 401(k), under Section 222.21 of the Florida Statutes. Accordingly, you should not have concerns about any liquidation of any portion of your 401(k) account if you file for Chapter 7 bankruptcy.

Your 401(k) Assets Will Not Be Subject to Liquidation If You File for a Reorganization Bankruptcy in South Florida

What should you expect regarding your 401(k) assets if you file for a type of reorganization bankruptcy? In South Florida, most individuals who file for reorganization bankruptcy will file for Chapter 13. However, there is a debt ceiling for this type of bankruptcy, and if you have too much debt, you will be ineligible for Chapter 13 bankruptcy. Instead, you will likely file for Chapter 11 bankruptcy, which is very similar to Chapter 13 bankruptcy but has no debt ceiling.

In either type of reorganization bankruptcy, assets are not liquidated. Accordingly, your 401(k) assets will not be liquidated. At the same time, you should know that the exemptions discussed above may still be important to your reorganization case since exemptions can play a role in determining the amount you must repay creditors to complete the bankruptcy case and to be eligible for a discharge of remaining debts.

Contact Our West Palm Beach Bankruptcy Attorneys for Help with Your Consumer Bankruptcy Filing and Assistance Protecting Your 401(k) Account 

If you are considering a personal bankruptcy filing but have concerns about your 401(k) account or any other retirement accounts, it is important to speak with a bankruptcy attorney who can assist you. As we discussed above, you should fully expect that your 401(k) account funds will be exempted (and thus protected) in your personal bankruptcy filing if you are filing for Chapter 7 bankruptcy such that you will not lose that retirement money. If you are filing for Chapter 13 bankruptcy, as we noted, your retirement accounts will not be at risk of liquidation. An experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC can speak with you today to answer any questions you have about your bankruptcy case and to begin working with you on your bankruptcy petition.

Sources:

dol.gov/general/topic/retirement/erisa

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0200-0299/0222/Sections/0222.21.html