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Can I protect my 401k in a bankruptcy filing?

One of the primary concerns many California residents have when they are contemplating a move toward filing for bankruptcy is whether or not their retirement savings accounts will be part of the proceedings, specifically their 401k. This is a completely rational concern, because what most people know about bankruptcy is that assets are forfeited to be sold and the proceeds are applied toward outstanding debts. So, is your 401k protected in a bankruptcy filing?

Well, the short answer is, "yes." While other forms of retirement savings accounts, like Individual Retirement Accounts, also known as IRAs, have limits on the amount that can be considered exempt, that is not the case with a 401k account. No matter how much you have in your 401k, it can be listed as one of your bankruptcy exemptions.

While this is obviously a good thing for many California residents who may be hesitant to take the next step in deciding on a bankruptcy filing, there are many other aspects of filing for bankruptcy that need to be considered thoroughly. Every person's situation is different, and for some there may be other options to consider before taking the step to file for bankruptcy.

However, for those individuals and families who find themselves struggling in this years-long sluggish economy, there may be no option but to file for bankruptcy and get a clean slate. Knowing that you're in a bad spot is one thing, but recognizing that bankruptcy is a financial tool that could help get you out of that tight spot is a big next step. Knowing that there are certain bankruptcy exemptions can help even the most hesitant person with the mental jump to decide to file for bankruptcy.

Source:, "Will my 401(k) be Safe if I File for Bankruptcy?," Justin Harelik, Accessed Oct. 2, 2014

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