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Filing bankruptcy can provide meaningful financial relief when you’re facing burdensome, unpayable debt. But it also requires disclosing your assets to the courts – which makes some filers worry about legal impacts if they continue saving for retirement.
The good news is that under most circumstances, you can and should continue contributing towards retirement during the bankruptcy process. Here’s what to know about keeping your nest egg intact even amidst Chapter 7 or Chapter 13 proceedings.
The Power of Retirement Asset Exemptions
Critical bankruptcy protections called “exemptions” let you exclude select assets from the bankruptcy estate when calculating value.
Different exemption types shield things like home equity, vehicles, household goods, tools of your trade, and more.
Importantly, under North Carolina state bankruptcy exemptions, qualified retirement accounts see protection. This includes workplace plans like 401(k)s and 403(b)s. IRA retirement balances also get fully exempted.
The amount you’ve accumulated in these tax-advantaged retirement plans does get tallied towards your bankruptcy asset total. That means retirement savings stay safeguarded for your future and remain under your control.
Can I Still Contribute to Retirement Accounts?
Continuing to contribute to exempt retirement accounts during bankruptcy is typically allowable. Since your balance stays protected, ongoing standard contributions pose no issue.
There are limits here: the Bankruptcy Code doesn’t allow exploiting exemptions to intentionally shield new assets from creditors.
So you cannot suddenly contribute more money into retirement right before filing.
However, maintaining regular, good-faith retirement contributions shows no attempt to improperly shield funds.
Courts understand why protecting retirement nest eggs through bankruptcy aligns with public policy. So without other complications, retirement contributions may continue unabated.
Retirement Contributions & Bankruptcy
Attorney Weik will address the specifics during your consultation, but some good general guidelines around retirement contributions include:
- Keep contributing up to yearly maximums If already doing so,
- Don’t suddenly contribute exponentially more right before filing
- Shift budgeted money saved elsewhere into retirement funds
The bankruptcy Means Test does require documenting all retirement distributions taken in the six months pre-filing. Large withdrawals can impact case eligibility, so please don’t proceed without advice from your bankruptcy attorney.
But again, with no excessive borrowing or cashing out, continuing your retirement contributions poses little issue when you’re filing for bankruptcy in Raleigh, NC.
Protect Your Future During Difficult Times
Bankruptcy aims to help those in financial crisis get back on their feet. That includes the ability to support yourself during your golden years. And as your bankruptcy lawyer, Attorney Weik is ready to help you safeguard your future.
On that note, strategizing correctly around bankruptcy and retirement accounts takes specific legal and financial planning.
Call Weik Law Office today at 919-845-7721 for a free consultation, and set up a time to speak with one of our friendly professionals.