Saving for retirement is no easy feat. Putting money aside for later when the bills are piling up now takes a lot of discipline. That’s why you should feel proud if you were able to save a sizable nest egg. If mounting debts have kept you from contributing to it recently, though, you may be feeling trapped. While declaring bankruptcy could discharge applicable debts, you might be worried about losing all savings in the process. Fortunately, a bankruptcy lawyer can evaluate the situation and explain what will happen to these assets during the proceedings. In the meantime, here is some general information on bankruptcy and its impact on retirement accounts. 

If You Are Still Saving

Fortunately, most retirement accounts are not subject to liquidation during bankruptcy proceedings. This includes 401(k), 403(b), 457(b), and Keogh accounts. Regardless of whether you declare chapter 7 or chapter 13, creditors cannot gain access to the funds in these accounts. When it comes to IRAs, though, there is an exception.

The funds in IRA and Roth IRA accounts are only protected up to a certain amount. This amount is adjusted every three years to correspond with the cost of living, and it is currently set at $1,283,025. It’s important to note that this exemption applies to all your retirement accounts combined. Therefore, if you have more than the exempted amount distributed across multiple accounts, any excess may be taken from an IRA account to pay back creditors. 

If You Are Already Drawing From the Accounts

If you are already retired and living off savings, the withdrawals could affect the bankruptcy proceedings. For example, the court will consider applicable monthly payments when evaluating eligibility for chapter 7. And if you want to declare chapter 13, your total retirement income will determine the terms of the repayment plan. Fortunately, a bankruptcy lawyer can help demonstrate how every withdrawal is used to cover reasonable living costs. This will reduce just how much creditors are entitled to.

If you’re facing an overwhelming amount of debt, a bankruptcy lawyer from Swartz Law Office can explain how the proceedings will affect various assets. Led by Donald K. Swartz, this firm is based in Batavia, OH, and helps clients resolve all kinds of legal disputes. Whether navigating a real estate transaction or fighting for custody during a contentious divorce, you can turn to Donald K. Swartz for attentive and personalized guidance. To learn more about his experience as a bankruptcy lawyer, visit his website. To schedule your first meeting, call (513) 732-0900.