When people are considering bankruptcy, one of the first concerns that they may have is how this decision will affect their future. For example, many may ask whether retirement savings is exempted under bankruptcy law and if creditors can take their 401(k)s. Here is a look at how bankruptcy can affect a person’s 401(k) retirement plan in Florida and other states.
In most cases, 401(k) retirement plans cannot be touched by creditors during a bankruptcy case. That is because of a law known as the Employee Retirement Income Security Act, or ERISA. This law gives protection to a person’s retirement assets if they go through financial hardships. Any 401(k) plan that does not fall under the Internal Revenue Code 401a, or is sponsored by the person’s employer, is exempt in bankruptcy.
There is a catch to this, however. While most creditors cannot get any of a person’s 401(k), the Internal Revenue Service can. If someone owes back taxes, the IRS can levy the funds from his or her retirement plan to pay them back. This is not something that they choose to do often and usually do so only as a last resort.
The money from a 401(k) is only safe from the IRS as long as the recipient isn’t tapping into it. But the government can collect from future disbursals of a 401(k) retirement. One way to fix this issue would be to go ahead and take out enough from the 401(k) to pay the IRS back now so that the person can enjoy the retirement in his or her future.
For those who are considering bankruptcy in Florida, but have questions about 401(k) retirement savings, IRAs, pensions, and other retirement plans, a bankruptcy lawyer can address those questions. This attorney can guide the client in ways to file for bankruptcy so that he or she can keep as much personal property as possible. The bankruptcy lawyer can also help the client determine which type of bankruptcy suits his or her situation the best.
Source: madison.com, “Can Creditors Seize My Investments During Bankruptcy?“, Sarah Szczypinski, July 19, 2017