Is your IRA Protected in Bankruptcy?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 signed into law by President George W. Bush, stipulates that many types of retirement plans, including IRAs, are exempt assets in bankruptcy proceedings and they may not be used to satisfy creditor demands.

Inflation Adjustment

As of April 1, 2016, the inflation-adjusted IRA exemption is $1,283,025 total for each individual. (The amount is adjusted for inflation every three years). While traditional and Roth IRA funds more than $1,283,025 are not protected under BAPCPA, the law states that bankruptcy courts are free to extend additional protection if justice warrants it and the judge decides to grant it.

Fully Protected Retirement Plans

Company retirement plan funds, including Simplified Employee Plan, or SEP, and Simple IRAs are wholly protected in bankruptcy. Company retirement funds that are rolled over to an IRA, they are still fully protected in bankruptcy in an unlimited amount. SEP IRAs, SIMPLE IRAs, and most rollover IRAs are fully protected from creditors in a bankruptcy, regardless of the dollar value.

Keeping Accounts Separate

It is a good idea to open a second account for the rollover IRA from a retirement plan. While it is not a legal requirement, it will help avoid any issues that may arise during bankruptcy proceedings. With separate accounts, it is easy to document the origin of the assets.

If you have significant assets in plans such as these, and you want to be sure that no creditor forces you to liquidate your retirement plan to pay off debt. Bankruptcy will, in most cases, enable you to accomplish this objective. However, you should only proceed after speaking with a qualified Dallas bankruptcy attorney.