Retirement Assets Are Protected in Wilmington Bankruptcy

Your retirement assets are protected in Wilmington bankruptcy

Image by Nathália Bariani via Unsplash

After years of hard work and diligently setting aside money, your retirement assets are your plan for your golden years. However, for seniors and those close to retirement who find themselves in a financial freefall, it's important to note that you can get debt relief while protecting your nest egg. If you’re stuck with debt you can’t pay, Wilmington bankruptcy might be the answer, and your retirement assets can be shielded while you shed your debt.

In most circumstances, your retirement accounts are protected in the event you file North Carolina bankruptcy.  Depending on the category of your retirement assets, they may be fully shielded or partially shielded up to a threshold. Here’s a look at what you can protect while you pursue legal debt relief using bankruptcy.

Retirement plans in bankruptcy

When the bankruptcy code was revamped in 2005, the new law expanded protection for most retirement and pension accounts and shields them from creditors during bankruptcy. Also, even without bankruptcy, creditors cannot touch your retirement accounts while trying to collect on debt. Before the new bankruptcy act, IRA protection was defined by states and wasn’t a guarantee for all bankruptcy filers. But now, most plans are protected, although there are some limitations.

ERISA retirement plans

Rulings from the Supreme Court determined that ERISA retirement assets are not part of your Wilmington bankruptcy estate. This means that the Trustee assigned to your case cannot touch even a dollar from these accounts if you file for bankruptcy. Examples of ERISA retirement plans include:

• 401(k)
• Employee stock ownership plans
• Money purchase plans
• Defined-benefit plans
• Tax-exempt organizational retirement plans
• Governmental pension and retirement plans
• Some 403(b) profit sharing plans

With these retirement assets, the protection from bankruptcy is unlimited which means, regardless of the value of the retirement asset, they are safe from your creditors both in and out of bankruptcy.

Non-ERISA retirement plans

The 2005 bankruptcy reform act also added standardized protection for other non-ERISA retirement plans that were previously subject to the rigors of state law. Other retirement and pension plans that are safe from creditors now include:

• 403(b), 457(b) and 457(f) deferred compensation plans
• IRAs
• SEP-IRAs (for small business owners)
• SIMPLE IRAs (for self-employed people)
• Roth IRAs

It’s important to note that bankruptcy protection for Non-ERISA plans is not total and without limit like it is for ERISA retirement assets.

Limits on bankruptcy protection for retirement assets

The protection for traditional and Roth IRAs caps at $1,283,025 per consumer. If you have multiple IRAs, this threshold applies to their combined value and is not on a per-account basis. If you have more than $1.28 million in this type of retirement account, any amount above the cap can be accessible to creditors or your bankruptcy trustee in your Wilmington bankruptcy.

However, if you have that much in a retirement account, it’s not too likely that you’ll be struggling financially. The maximum threshold for protection is adjusted every three years for inflation based on the consumer price index and was last adjusted in 2016. This limit doesn’t apply to SEP IRAs and SIMPLE IRAs, so these are protected fully.

Chapter 7 and Chapter 13 bankruptcy

Chapter 7 bankruptcy allows consumers to discharge most unsecured debt including credit cards, medical bills, signature loans, old utility bills, and some qualified older income taxes. With Chapter 13, you get on a repayment plan to catch up on past-due secured debt like your car loan or mortgage while also getting relief on some (or possibly all) of your unsecured debt.

Choosing Wilmington bankruptcy to deal with your debt can get your finances back on track and stop debt collectors from hassling you as soon as your case is filed. You can get the fresh financial start you need while enjoying the reassurance that your retirement assets will be there for you and are protected during your bankruptcy case.

To find out more about the benefits of bankruptcy, contact the Law Offices of John T. Orcutt. Read reviews from satisfied clients, then call +1-833-627-0115 to schedule a free Greensboro bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro or Wilmington. Get the debt relief you need starting today.