Filing for bankruptcy is a big step. It is an admission that you are simply unable to keep up with your bills or repay your debt, and that you need significant help. When you decide to file for bankruptcy under Chapter 7, non-exempt assets will be sold or used to pay off your debts, and this includes many of the financial instruments and investments that you own.

The first thing that you need to know about how filing for bankruptcy will impact your investments is that anything that is considered an ERISA-qualified retirement plan will not be touched. There are no limits on the amount of money that you can have in a plan that is specifically designated as being for your retirement. What qualifies as an ERISA plan, however, can be complicated, and other types of accounts including general savings accounts, investment accounts and stock option plans will simply be taken.

What you can hold onto will be the type of traditional retirement account that many employers offer. Even if the amount that is held in those accounts could pay off your debts, you will not be forced to liquidate them in order to pay your creditors, though any income that you receive from them will be considered in determining whether you qualify for a Chapter 7 bankruptcy or need to apply under Chapter 13 and create a payment plan.

The plans that fall into the category of being ERISA-qualified (and therefore protected from being included as an asset in a bankruptcy) include:

• 401(k)s
• 403(b)s
• IRAs (Roth, SEP, and SIMPLE up to $1,283,025 per person)
• Keoghs
• Profit-sharing plans
• Money purchase plans
• Defined-benefit plans

Though some may be confused as to why these types of accounts are exempted from inclusion in a bankruptcy, the reason is simply: by allowing people to hold onto their retirement savings, they are truly able to start with a clean slate rather than being ‘behind’ by virtue of not having enough money to live on once they are no longer working. Leaving retirement accounts gives people who file for bankruptcy a better chance of avoiding getting into financial trouble in the future.

The rules around bankruptcy are complex, so if you are considering filing it is a smart move to consult with an attorney who has experience in what can and cannot be protected. To learn more, contact our office today.