Chapter 7 bankruptcy is one of the fastest, most aggressive solutions for significant personal debt. Individuals who have below-average income and debts they cannot pay promptly may choose to initiate Chapter 7 proceedings. Filers can potentially discharge their eligible debt in months if they successfully complete the bankruptcy process. However, the Chapter 7 process may require the liquidation of assets in some cases.
Those who have accumulated valuable property, such as a well-funded retirement account or a pension, may worry about the loss of those resources. Does a Chapter 7 bankruptcy lead to a loss of retirement resources?
Filers can exempt some savings
Both federal regulations and state statutes allow people to protect certain property from liquidation during bankruptcy. Retirement accounts have some of the most robust protections available under the law.
Currently, pensions and other retirement resources that are subject to the rules of the Employee Retirement Income Security Act of 1974 (ERISA) are not eligible for liquidation to repay creditors during litigation. Therefore, those assets have protection during a bankruptcy filing as well.
People can also theoretically preserve a substantial amount of money set aside in a Roth or traditional IRA, while a simple IRA may be fully exempt. The way that an individual holds their retirement resources can influence how much of their savings they can preserve.
Reviewing personal assets with a skilled legal team is a critical part of preparing for Chapter 7 bankruptcy. Filers may need help determining what exemptions they can use and what assets they can protect, and that’s okay. With proper support, many people can preserve their retirement savings and avoid asset liquidation entirely.