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Home  Personal Bankruptcy  What happens to my retirement savings if I file for bankruptcy?

A major concern for people who need help with debt relief is whether their retirement savings will remain intact. Fortunately, 401(k)s, IRAs, and most types of retirement plans are exempt from the reach of creditors.

However, you will want to avoid doing anything with your retirement accounts while you are going through the bankruptcy process. If you withdraw funds or shift assets into or out of a retirement plan, your accounts may lose their exempt status, putting your savings at risk.

Things you shouldn’t do with your retirement savings

If you’re contemplating filing for bankruptcy, it’s best to pretend your retirement accounts don’t even exist. You should avoid:

  • Taking money out of your 401(k): Once you cash out your 401(k), it will no longer be exempt. You don’t even have to make a full withdrawal. Shifting a portion of your savings into another account or your wallet is enough to leave your 401(k) vulnerable to creditors.
  • Using your retirement savings to pay off your debts: Initially, it might look like it makes sense for you to dip into your savings to pay off your debts. However, you will then be left with little to nothing to retire on. You’ve swapped one financial problem for another. There’s nothing wrong with seeking protection through bankruptcy. That’s why the option exists in the first place.
  • Moving assets around before filing for bankruptcy: It can be tempting to move non-exempt assets into a retirement account to get around creditors. Doing so can be a serious mistake. At best, your accounts will lose their exemption status. At worst, you run the risk of facing criminal fraud charges.

Concerns about your retirement accounts should not prevent you from seeking lasting debt relief. You should take the time to discuss your situation with a skilled legal professional.