People with valuable resources may assume they cannot file for Chapter 7 bankruptcy. They do not want to risk the forced liquidation of their home equity or other valuable assets. Professionals who have saved for retirement for many years may worry specifically about the resources they require to retire comfortably after decades of hard work.
Individuals who qualify for Chapter 7 bankruptcy in California can usually protect some – if not all – of their property through the careful use of bankruptcy exemptions. Are there exemptions that help protect retirement savings?
Many savings are fully exempt
Filers in California do not have the option of using federal exemptions, so they rely on California state statutes to protect their property during bankruptcy proceedings. Thankfully, California law includes many of the same protections as those available through federal exemptions.
Employees who have pensions, 401(k)s and similar savings accounts connected to their employment can typically retain the entirety of their retirement savings. Union retirement plans and profit-sharing plans through companies may also be exempt.
There are limits on the exemptions that apply to IRA accounts that depend on current financial circumstances, including inflation, and the type of IRA account used. Unfortunately, those who save for retirement using traditional savings or investment accounts without a special retirement designation may not have access to the same protection for their savings.
Filers hoping to preserve as much of their retirement resources as possible may need guidance as they review their savings and explore the exemptions available during Chapter 7 bankruptcy proceedings. Working with a bankruptcy attorney can make it easier for people who have saved for retirement to preserve their savings after discharging their unsustainable debts.