You may have worked hard your whole life to set yourself and your dependents up nicely at the time of your retirement. So it may be devastating to think about your retirement funds escaping you in one fell swoop at the time of your bankruptcy filing. This may make you all the more hesitant to follow through with this, even given your financially dire circumstances. Well, continue reading to learn whether a bankruptcy filing can cause your 401(k) funds to be taken and how an experienced Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C. can help protect them at all costs.
Can a bankruptcy filing take my 401(k)?
You may be happy to discover that the New York State bankruptcy court generally protects 401(k) funds from bankruptcy cases. Put another way, your 401(k) is considered a protected asset that you will not be expected or forced to drain to pay off your outstanding debts.
There are only a few unusual or extreme circumstances in which these funds will become a part of your bankruptcy estate. For example, the Internal Revenue Service (IRS) may seize your 401(k) funds if you have unpaid federal income taxes. Or, you may have to withdraw a certain percentage of these funds if you have unpaid spousal or child support or there is otherwise a qualified domestic relations order against you. Lastly, the federal government may take these funds to pay off any criminal fines and penalties imposed on you.
What happens if I file for bankruptcy after retirement?
Say the circumstances you are dealing with is that you have already retired and cashed into your 401(k) account to receive income, but you still need a bankruptcy filing for further financial support. Well, in a case like this, your Chapter 7 or Chapter 13 bankruptcy may proceed slightly differently.
For one, you must pass the Chapter 7 means test to qualify for this bankruptcy type. Meaning you must fall below New York State’s median income of $69,135 per year for a family of one, as of 2024. Of note, this test considers all income streams, including your monthly retirement benefits. This is to say that, depending on your total income level, your withdrawn funds from your 401(k) account may not necessarily be exempt from your creditors.
As for your Chapter 13 bankruptcy, federal law may protect up to $1,512,350 across all your retirement plans, including your 401(k) funds. However, your bankruptcy trustee may take anything over this amount to pay off your outstanding creditors.
Do not wait. Retain the services of a skilled Rockland County bankruptcy attorney from The Law Offices of Allen A. Kolber, Esq., P.C. We look forward to working with you and taking on your case.
