Can You Keep Your Retirement Accounts When Filing Bankruptcy in Florida?
Many qualifying retirement accounts receive significant protection in bankruptcy.
For many people considering bankruptcy, retirement savings represent years or even decades of planning for the future. Therefore, the possibility of losing a 401(k), IRA, pension or other retirement account can create significant concern.
Filing bankruptcy in Florida does not automatically mean losing your retirement savings. Many qualifying retirement accounts receive substantial protection under Florida and federal law. The protection available can depend on the type of account, how it was established and whether the funds remain in a qualifying retirement account. Florida Senate
Before withdrawing, transferring or otherwise moving retirement funds, it is important to understand how those funds may be treated in bankruptcy.
Are Retirement Accounts Protected in Florida Bankruptcy?
In many cases, yes.
Florida law provides creditor protection for money or assets held in qualifying tax-exempt retirement funds and accounts. Federal bankruptcy law also provides protection for qualifying retirement funds. Florida Senate
As a result, retirement savings can often be treated very differently from ordinary cash, investments or other assets when bankruptcy is filed.
However, the specific account and the circumstances surrounding it should be reviewed before assuming that every retirement asset receives the same protection.
Are 401(k)s Protected When Filing Bankruptcy?
A traditional employer-sponsored 401(k) that satisfies the applicable requirements will generally fall within the categories of tax-qualified retirement funds recognized by Florida law and federal bankruptcy law. Florida Senate
Other employer-sponsored retirement arrangements may also qualify for protection, including certain pension, profit-sharing, 403(b) and governmental 457(b) plans.
Therefore, having substantial savings in a qualifying retirement plan does not necessarily mean those funds must be used to pay creditors before bankruptcy can be considered.
Are IRAs And Roth IRAs Protected In Florida?
Florida’s retirement-fund statute includes qualifying accounts maintained under Internal Revenue Code §408 and §408A, which cover traditional IRAs and Roth IRAs. Florida Senate
Federal bankruptcy law also contains protections for qualifying retirement funds, although specific federal rules and limitations can apply to certain IRA assets. Legal Information Institute
Because the source, type and history of an IRA can matter, each account should be identified and reviewed as part of the bankruptcy planning process.
What About Inherited Retirement Accounts?
Inherited retirement accounts deserve additional attention because the rules can differ depending on the circumstances.
The U.S. Supreme Court has held that an inherited IRA did not qualify as “retirement funds” under the particular federal bankruptcy exemption at issue in Clark v. Rameker. However, Florida’s statute separately addresses certain inherited individual retirement accounts and provides state-law creditor protection when statutory requirements are satisfied. Legal Information Institute
Therefore, inherited accounts should be reviewed individually rather than assuming the same rules apply to every IRA.
Should You Withdraw Retirement Money Before Filing Bankruptcy?
Not without understanding the consequences first.
Money that is protected while held inside a qualifying retirement account may be treated differently after it has been withdrawn.
Additionally, withdrawing retirement savings can create tax consequences and potentially reduce protections that might otherwise have been available.
For that reason, using retirement savings to pay creditors or moving money shortly before filing bankruptcy should be carefully evaluated before action is taken.
Does Chapter 7 Or Chapter 13 Make A Difference?
The bankruptcy chapter still matters, although qualifying retirement funds may receive protection in either type of case.
In Chapter 7 bankruptcy, exemptions and other applicable protections determine which assets may remain outside the reach of the bankruptcy estate or trustee.
In Chapter 13 bankruptcy, debtors generally retain their property while completing a court-approved repayment plan. However, assets, income and available exemptions can affect how the plan is structured.
Therefore, retirement accounts should be considered as part of the individual’s overall financial situation rather than viewed in isolation.
Protect The Retirement Savings You've Built
Filing bankruptcy in Florida does not automatically mean sacrificing the retirement savings you have spent years building.
Qualifying 401(k)s, IRAs, Roth IRAs, pensions and other retirement arrangements may receive substantial protection under Florida and federal law. However, the type of account, how the funds are held and what happens to the money before filing can all matter. Florida Senate
At Carratt Law, we help clients understand how their retirement accounts, bank accounts, home, vehicles, debts and other property may be affected before a bankruptcy case is filed. Reviewing those issues beforehand can help identify available protections and avoid unnecessary financial mistakes.
If you are considering bankruptcy in Florida and are concerned about protecting your retirement savings, contact Carratt Law to discuss your options.
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