After spending most of your career saving for retirement the idea of your hard earned money being taken away is devastating. Retirement accounts are essential to maintain the life you built, therefore the fear of creditors can keep some people from choosing to file bankruptcy. Believe it or not you are protected by the law, and you should not let this fear dictate your future.
401(k) accounts after bankruptcy
401(k) and 403(b) accounts are typically established through an employer and can become the major contributor to your retirement. Federal law protects your 401(k) from being garnished by creditors, even after filing bankruptcy. On the other hand, solo 401(k) accounts (also known as individual 401(k) or self-employed 401(k) accounts) are more vulnerable to damage depending upon your state. A solo 401(k) account is a retirement plan created for business owners and their spouses in which they do not have additional employees. As a Floridian, your solo 401(k) is safe due to state law.
Traditional and Roth IRAs
Individual Retirement Accounts, or IRAs, are a type of savings account set up specifically for retirement. By federal law, you can keep up to $1 million in a traditional or Roth IRA which cannot be touched by creditors after bankruptcy.
Do not move retirement funds
Many people panic when facing bankruptcy and decide to transfer their retirement funds for quick cash. This will cost you! 401(k) accounts and IRAs are safe from creditors, but your bank account is an unlocked door. Once you switch retirement funds into personal accounts the money can be taken away. Leave your funds in retirement accounts to keep them protected for the future. The results of bankruptcy can be confusing, so if you have any questions speak with a bankruptcy attorney to make sure your retirement funds are fully protected.