Are Funds in a Qualified Plan a Part of Your Bankruptcy Estate?
When you qualify to permanently discharge debts through a Chapter 7 bankruptcy petition, you must make some of your assets available to the bankruptcy court, to be used to pay some of your debt to your creditors. In New Jersey, you can claim exemptions for real property, a car and a certain amount of personal property. What about your retirement accounts? Will your creditors have access to the funds you’ve put away?
Can Funds in a Qualified Retirement Plan Be Used to Pay Creditors in a Chapter 7 Filing?
No. Under the American bankruptcy laws, qualified retirement funds will never be available to satisfy debts in a Chapter 7 bankruptcy filing.
What Makes a Retirement a Qualified Plan?
To be protected as a qualified plan, a retirement account must meet the requirements of the Internal Revenue Code for tax deferment. Common examples of qualified retirement plans include 401k plans, 403b plans and most pension plans.
Creditors may not obtain access to any qualified plan to obtain repayment of a debt in bankruptcy. Qualified plans include any employer-sponsored retirement plans that meet the requirements of the Internal Revenue Code for deferment of income tax (until after retirement). Qualified plans include defined contribution plans and defined benefit plans. Examples of employer-sponsored retirement plans that will be exempt from bankruptcy include 401k plans, 403b plans, SEP IRAs, and SIMPLE plans. Any defined benefit or defined contribution plan will qualify, though, provided that it allows for the deferral income tax until after retirement.
A personal retirement account that defers income taxation will also constitute a qualified plan. As such, it will not be available to creditors in a bankruptcy filing.
Can You Protect Funds in a Non-Qualified Retirement Account?
Contributions to a retirement plan that does not defer taxes may, nonetheless, be exempt from your bankruptcy estate, based mostly on state laws. If you have investments or other funds in a non-qualified plan, you’ll want to seek the counsel of an experienced personal bankruptcy attorney.
Contact Attorney Howard N. Sobel
At the Law Office of Howard N. Sobel, P.A., we provide personal bankruptcy counsel to men and women throughout the state of New Jersey. Contact our office online or call us at 856-424-6400 to set up a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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