What Happens to My Retirement Fund in Bankruptcy?
Full Question:
Answer:
Two factors determine whether creditors and bankruptcy trustees have any rights to the debtor's retirement assets:
· Is the retirement fund property of the estate?
· If the retirement fund is property of the estate, can it be exempted?
Recent amendments to the Bankruptcy Code have created a federal exemption for IRA's and like retirement vehicles capped at a little over $1 million, and made that exemption available in all states. § 522(n).
If you wish to sell your Homestead in a Chapter 7 or Chapter 13 Bankruptcy you can generally do so and retain the proceeds. You can list your house for sale after a discharge or even before the discharge. The key moment in bankruptcy is the date and time you file your bankruptcy with the bankruptcy clerk. Everything you owned and owed before the filing comes within the jurisdiction of the bankruptcy court. And, theoretically, anything that happens after the filing is not -- debts and income, both. Thus you could list and even sell your homestead after filing and even before discharge.
The Supreme Court held that retirement plans that have a legally enforceable anti-alienation clause (a provision preventing creditors from attaching the retirement funds of a debtor) are not property of the bankruptcy estate and thus are not subject to the jurisdiction of the bankruptcy court and cannot be accessed to pay creditors.
Nearly all pensions and 401K savings plans that are qualified under ERISA, the federal pension savings act, have an anti alienation clause that excludes them from the bankruptcy estate.
A retirement plan that has only one participant, such as single employee corporate plans, and some other plans originating in self employment are an exception. These plans may be property of the estate. They may be vulnerable to creditors unless subject to an exemption. Professional advice is recommended if this describes a significant asset of yours.
Assets that are not property of the estate don't even have to be the subject of a claim of exemption: these funds simply don't enter into the equation regardless of the size of the benefit.
See also:
http://www.moranlaw.net/retirement.htm
Please see the following portion of the Bankruptcy Code:
http://doney.net/bkcode/11usc0522.htm
For assets in individual retirement accounts described in section 408 or 408A of the Internal Revenue Code of 1986, other than a simplified employee pension under section 408(k) of such Code or a simple retirement account under section 408(p) of such Code, the aggregate value of such assets exempted under this section, without regard to amounts attributable to rollover contributions under section 402(c), 402(e)(6), 403(a)(4), 403(a)(5), and 403(b)(8) of the Internal Revenue Code of 1986, and earnings thereon, shall not exceed $1,000,000 [$1,095,000 effective 4-1-07. Adjusted every 3 years by section 104.] in a case filed by a debtor who is an individual, except that such amount may be increased if the interests of justice so require.
(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in--
(1) real or personal property that the debtor or a dependent of the debtor uses as a residence;
(2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(3) a burial plot for the debtor or a dependent of the debtor; or
(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;
shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.
(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $125,000 [$136,875 effective 4-1-07. Adjusted every 3 years by section 104.] in value in--
(A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(C) a burial plot for the debtor or a dependent of the debtor; or
(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.
(2)
(A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family farmer for the principal residence of such farmer.
(B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State.
(q)
(1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $125,000 [$136,875 effective 4-1-07. Adjusted every 3 years by section 104.] if--
(A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18), which under the circumstances, demonstrates that the filing of the case was an abuse of the provisions of this title; or
(B) the debtor owes a debt arising from--
(i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws;
(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the Securities Act of 1933;
(iii) any civil remedy under section 1964 of title 18; or
(iv) any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.
(2) Paragraph (1) shall not apply to the extent the amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) is reasonably necessary for the support of the debtor and any dependent of the debtor.