One of the primary goals of Chapter 7 or Chapter 13 bankruptcy is to provide debtors with a financial fresh start. Imagine a world where bankruptcy stripped debtors of everything and you have to wonder how anyone could start over again.
Fortunately, both Chapter 7 and Chapter 13 bankruptcy allow you to keep property that provides that new beginning. These provisions of the bankruptcy code, called “exemptions,” allow debtors to keep certain property that is essential to a new start. Among the items that are protected are household goods, tools used in a trade, and the equity in a vehicle up to a certain amount. One of the biggest Colorado bankruptcy exemptions can be found in Colorado Revised Statute 13-54-102(s) which protects retirements accounts like 401(k)s and IRAs.
Property, including funds, held in or payable from any pension or retirement plan or deferred compensation plan, including those in which the debtor has received benefits or payments, has the present right to receive benefits or payments, or has the right to receive benefits or payments in the future and including pensions or plans which qualify under the federal “Employee Retirement Income Security Act of 1974″, as amended, as an employee pension benefit plan, as defined in 29 U.S.C. sec. 1002, any individual retirement account, as defined in 26 U.S.C. sec. 408, any Roth individual retirement account, as defined in 26 U.S.C. sec. 408A, and any plan, as defined in 26 U.S.C. sec. 401, and as these plans may be amended from time to time.
Be aware that the retirement plan must be a qualified plan, meaning that it must fall under ERISA. What that means is that if you have been putting savings into an E*trade account or other similar stock purchase account, that account won’t be protected. Unless you convert the stock to non-exempt property, you’ll be turning it over to the bankruptcy trustee who will distribute it to your creditors.
The bottom line is that your 401(k) or IRA account is protected when you file Chapter 7 or Chapter 13 bankruptcy. Instead of liquidating your retirement to pay your creditors, consider if bankruptcy might be a better option, especially if your retirement account will only keep you afloat for a few months. With your retirement account intact, you’ll be able to move forward with your retirement dreams.
If you are thinking about Chapter 7 or Chapter 13 bankruptcy but are considering using your retirement account to make ends meet, schedule a consultation with a Denver bankruptcy attorney first. Our consultations are free and require no obligation to hire us. The conversation could help you find out what your best option is.