Retirement Plans in Bankruptcy
Bankruptcy may seem like losing all your essential assets, but it is not the same as bankruptcy. Although bankruptcy significantly affects your retirement plans, it does not mean that you will lose everything you have saved for your retirement. A retirement account or retirement fund is very different from other savings or investment accounts and can be saved for your future personal needs.
There are many ways you can deal with your retirement accounts when it comes to bankruptcy. In most cases, you can keep the retirement account separate from the whole procedure. In other cases, your savings are invested in insurance or held in trust.
The government usually protect your retirement fund, but if you take money from a retirement fund and place them in a different account, the rules applied to them will change. The money that you withdraw from the retirement account will be treated as income for your debts. Hence, it is advised to refrain from withdrawing money from your retirement fund until after your bankruptcy.
You can also use bankruptcy exemptions to save some of your property, funds, household belongings, and some basic necessities to live after retirement.
Although the funds in your retirement account are exempt from creditors, the benefits paid as income are not discharged. Under chapter 7 bankruptcy, the court cannot take your retirement benefits and pensions and consider them as income. However, the court can take some amount from your retirement benefits for your own support and pay off some portion to your creditors.
Under chapter 13 bankruptcy, the court decides the amount of money to be paid to your creditors monthly on the basis of the total amount of retirement benefits or pensions you are receiving. This is done only for the debts that you must repay under your repayment plan.
Keep in mind that general saving accounts, stock option plans, and investment accounts are not the same as retirement accounts and are not protected from the court. Court has the authority to utilise your unprotected accounts to pay your creditors and essential debts under your repayment plans.