What Happens to Your Retirement Assets if You File for Bankruptcy?

Filing for bankruptcy can be a mix of financial relief and fear, and that’s true whether you’re filing for Chapter 13 or Chapter 7. One of the major concerns many people have when considering bankruptcy is whether or not they will be left with anything after the process is over.

Many people wonder, for example, if they will be able to keep their home or if their cash savings will be wiped out in bankruptcy. Retirement accounts, such as 401(k)s may also be a concern. After all, you may have worked hard for those savings for years. While starting over financially after bankruptcy can seem like a good idea, you likely don’t want to start over with saving for your Golden Years.

Why You Need to Consider Protecting Assets During Bankruptcy

Luckily, there are ways to safeguard some of your assets during bankruptcy. It’s important to consider all of your options and how your assets might be treated during a bankruptcy before you choose to file.

First, you’ll want to consider whether Chapter 7 or Chapter 13 is the right choice for you. How much debt you have, your income, and other factors help determine which type of bankruptcy you should file. Whether or not you want to keep certain assets can also make a difference in which type of bankruptcy is the right choice. An experienced bankruptcy attorney can talk through your situation and your options to help you make an educated choice.

If you choose to file a Chapter 13 bankruptcy, you will participate in what is known as a repayment plan. You must submit a plan for repaying a certain amount of your debts. How much you have to repay depends on factors including how much you make and how many liquid assets you have. Some of your assets may be taken by the bankruptcy trustee to pay back some of your debts.

It’s important to know which of your assets are exempt or can be protected from this process. Without the right protections, you may forego assets that you will need later — such as savings meant to fund your life during retirement.

Colorado Bankruptcy Exemptions for Qualified Retirement Savings

Colorado provides bankruptcy exemptions for numerous asset types, including certain retirement savings. Specifically, if you have retirement savings in any of the following types of accounts, they may be exempt from the bankruptcy process. That means that the trustee will not take these assets to pay off your creditors.

  • Employer-sponsored pension plans
  • Employer-sponsored retirement plans, including 401(k)s and IRAs
  • Certain Roth IRAs

Typically, the retirement assets must be held in an ERISA-qualifying account. That means an account that is protected under the Employee Retirement Income Security Act of 1974. If you’ve simply been putting money away in a savings account or an investment account, looking to build wealth for your retirement, these assets may not be exempt under these provisions.

The exemption is usually only good up to a certain amount. However, the amount is generally well above $1 million, so in many cases, a person’s entire retirement savings can be safeguarded.

It’s important when talking to a bankruptcy lawyer to disclose all of your assets accurately. That way, they can make the best recommendations for how to move forward with debt defense or bankruptcy in your case.

Other Colorado Bankruptcy Exemptions

Colorado also provides other exemptions to help protect certain assets in the event of Chapter 7 or Chapter 13 bankruptcy. For example, the homestead exemption protects your home up to a certain amount of equity. You can also protect:

  • Vehicles that you own up to a certain value, especially if you use those to travel to and from work
  • Personal property, such as clothing
  • Tools, supplies, equipment, and livestock you need for work
  • Government benefits and support

In some cases, filing a Chapter 13 bankruptcy may make some of these exemptions less important. That’s because a Chapter 13 filing can be designed to allow you to keep certain assets and continue paying for them during and after bankruptcy — such as a primary residence or car.

Work With an Experienced Colorado Bankruptcy Attorney

Bankruptcy law is incredibly complex, and there are times when state and federal laws aren’t the same. In those cases, the state law typically prevails. For example, there are federal bankruptcy exemptions that aren’t afforded to Colorado residents in all cases because they may use the state exemptions instead. In other cases, both exemptions may apply.

To ensure the chances of the best possible outcome when filing a Chapter 13 bankruptcy, it’s a good idea in most cases to work with an experienced bankruptcy lawyer. Your attorney can help you:

  • Understand what type of filing is right for you. Attempting to file Chapter 13 when Chapter 7 would be a better option can leave you paying debts you may have been able to discharge.
  • Make use of all available exemptions. Without the right knowledge going into bankruptcy, you may give up more of your assets than you have to.
  • Create and file the most accurate paperwork possible. Leaving off a creditor when you file bankruptcy or making a small mistake in calculations can mean you owe money to creditors after your bankruptcy when those debts might have been discharged in the bankruptcy.

Financial duress can make it difficult to rationally consider your options and move forward. If you’re experiencing this type of money distress, take some time to talk to a bankruptcy attorney soon to find out what options you have for relief. Call the Holland Law Office to make an appointment at 970-232-3097.