Filing for bankruptcy is a big life decision. It has the power to permanently resolve debts and provide lasting financial stability, but can come with some risks if your circumstances aren’t ideal for the bankruptcy process and you aren’t completely forthcoming with your bankruptcy lawyer. When it comes to large financial choices like filing for bankruptcy, people tend to look at the big picture. Most of the time, this includes questions about what will happen to retirement plans and how contributions can continue. The answers to these questions can vary from case to case, but for the most part, filing for bankruptcy won’t impact retirement funds negatively. With the guidance and support of a Behm Law Group, Ltd. attorney you can file a strong and successful case for bankruptcy in Redwood Falls, MN and the surrounding areas.
Bankruptcy can be a complex and nuanced legal process. The various chapters handle debts and incomes differently, and debts themselves are handled based on whether they are priority, secured, or unsecured debts. Retirement funds can be sources of income in the bankruptcy process, depending on what kind of retirement funds you have.
In Chapter 7 bankruptcy, your debts are discharged in exchange for the liquidation of your non-exempt assets. While some of your non-exempt assets may be liquidated, you can protect most of your property with the bankruptcy exemptions provided under either the bankruptcy code or Minnesota state law. Exemptions like the Homestead Exemption and the Vehicle Exemption will allow you to protect the equity or value in your house and your car depending on how much debt you owe against them. Learn more about Chapter 7 exemptions. Generally speaking, the bankruptcy exemptions are very generous and, in most cases, all someone loses is debt.
Although your retirement fund is considered an asset, many may not even be considered as part of your bankruptcy estate. 401(k)s, 403(b)s, Keoghs, and many other retirement plans are fully exempt from bankruptcy liquidation. Roth IRAs and traditional IRAs are also not subject to liquidation, but they have an exemption limitation up to $1,362,800 per person. This amount is adjusted as cost-of-living changes. The most recent adjustment was in 2019 and the next is projected for 2022.
In Chapter 13 bankruptcy, your debts are reorganized into a manageable three- to five-year repayment plan. During that time, all your disposable income – income that is not needed to cover your reasonable and necessary living expenses – must go to repaying your creditors. However, as long as you have had a history of making contributions to your retirement account, you will still be allowed to do so in chapter 7 and chapter 13 bankruptcy cases. Learn more about disposable income. In fact, in some cases you will be allowed to make larger contributions to your retirement account if you are close to retirement age.
Overall, your retirement plan will not be affected negatively by a bankruptcy, but you may have to adjust your contributions for a three- to five-year period if you file for Chapter 13, depending on your age and how close you are to retiring. To learn more about filing for bankruptcy in Redwood Falls, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.
