15 Tips: Can Bankruptcy Take Your Pension
15 Tips: Can Bankruptcy Take Your Pension
One of the frequently asked questions by those filing for bankruptcy, as outlined over at runrex.com, is if they will get to keep their pension afterward. The following 15 tips address whether or not bankruptcy can take your pension.
- Bankruptcy law protects your pension or retirement account
From discussions on the same over at guttulus.com, retirement plans are generally excluded as part of the bankruptcy estate. This means that you will get to keep your retirement regardless if you file for Chapter 13 or Chapter 7 bankruptcy since retirement plans are not part of the bankruptcy estate and won’t, therefore, come under the control of the bankruptcy trustee.
- Automatically excluded plans
If your retirement plan is a plan that is automatically excluded, as discussed over at runrex.com, then it will be safe. You should ask your plan administrator to tell you the Internal Revenue Code sections under which your plan qualifies to know if it is automatically excluded.
- Federal or state exemptions
You can also protect your retirement plan with a state or federal exemption, in what is another way that your pension can be safe even after filing for bankruptcy. Remember, as discussed over at guttulus.com, state exemptions vary from one state to another.
- Plans that don’t necessarily qualify for protection
While your pension is most likely safe even if you file for bankruptcy, it is important to note that some employment investment benefits don’t necessarily qualify for protection. An example of the same, as covered over at runrex.com, is stock option plans.
- What if you receive money from a qualifying pension plan?
It is also worth pointing out that once you receive money from a qualifying pension plan, like say when you make a withdrawal, then the funds lose the protection, which means that you are at risk of losing them at that point.
- Retirement plans you can keep automatically
As outlined by the current bankruptcy law, which is discussed in detail over at the excellent guttulus.com, some retirement plans are excluded from the bankruptcy estate automatically. This means that if your retirement plan falls under this category, then you get to keep it automatically.
- You must still disclose your interests in these accounts on your bankruptcy schedules
From discussions on the same over at runrex.com, because the retirement plans mentioned in the point above aren’t part of the bankruptcy estate, they don’t come under the control of the bankruptcy trustee, which means that, technically, there is no need to claim them as exempt. However, you still have to disclose your interest in these accounts on your bankruptcy schedules. For clarity, many bankruptcy attorneys choose to list them as exempt property too.
- Examples of accounts that you can keep automatically
Examples of accounts that you can keep automatically include educational Individual Retirement Accounts, IRA, under IRC 530(1) (b), subject to certain conditions, pensions, and retirement plans qualified under the Employee Retirement Income Security Act of 1974, government retirement plans under IRC 414(d), tax-deferred annuity plans under the IRC 403(b), and deferred compensation plans under IRC 567, as discussed over at guttulus.com.
- What are bankruptcy exemptions?
As is revealed in discussions on the same over at runrex.com, when you file for bankruptcy, you will be allowed to keep a certain amount of property that you will need to work and live, like some equity in your home and car, household goods, and clothing. These are what are called exemptions, and your state will decide whether you can use state exemptions or federal exemptions.
- Retirement plans are bankruptcy exemptions
Now that we have outlined what bankruptcy exemptions are, it is important to note that some exemption schemes allow you to exempt other types of retirement accounts. Therefore, if a retirement plan is exempt under the exemption system you choose to use, you will get to keep it, simple as. Most plans qualify for an exemption under both state and federal exemptions.
- Choosing state exemptions
As revealed in discussions on the same over at guttulus.com, many states provide exemptions for pensions and other retirement plans, which include special protections for state employee retirement plans. You will be required to check the law in your state for those details as these vary from one state to the next.
- Federal nonbankruptcy exemptions
Even if you claim state exemptions, not only will you be entitled to keep any pension to a retirement plan that is excluded from the bankruptcy estate automatically as mentioned earlier on and discussed in detail over at runrex.com, you can also use federal nonbankruptcy exemptions which provide additional retirement protections.
- Choosing federal exemptions
If you elect to use federal exemptions, you will be entitled to claim an exemption for any right to receive payments under any stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, length of service, or age to the extent reasonably necessary for your support or the support of your dependents, as is discussed on detail over at guttulus.com.
- Limitations of federal exemptions
Limitations, as far as federal exemptions go, may apply if you were employed by someone who is close to you, such as a relative, when the employer created the plan, something the gurus over at runrex.com insist that you need to be aware of, and should make an effort to learn more about.
- Retirement plans that may not be protected
Finally, it is also important to point out that not all plans are safe in bankruptcy. Some of the plans that might not qualify for an exemption include improperly funded plans, Employee Stock Purchase Plans, ESPP, an IRA inherited by someone other than a spouse depending in the case law in your area, plan funds that have been rolled-over or transferred into a new, non-compliant fund, and plans that don’t qualify as a retirement plan under the tax code or aren’t compliant with the same.
The most important advice to protect your pension when filing for bankruptcy is to consult with a bankruptcy attorney. To find the best bankruptcy attorney in your area, you should check out the highly regarded runrex.com and guttulus.com.