Are Pension and Retirement Accounts Protected in Pennsylvania Bankruptcies?
If filing for bankruptcy is in your near future, you might be worried about retirement or pension accounts you have set aside for your future well-being. The good news is that many of these accounts are protected from bankruptcy. Unfortunately, creditors might still try to seize certain accounts under specific circumstances.
When a person files for bankruptcy, various types of accounts meant for retirement are shielded from creditors, lenders, and courts. However, retirement accounts you might have inherited are fair game and might be seized to pay your debts. To protect your vulnerable retirement accounts and other assets, you should talk to a lawyer about how you should approach filing for bankruptcy. Cashing out accounts or savings, including those set aside for retirement, might be tempting but should be avoided until you speak with a lawyer. Certain bankruptcy chapters might allow you to retain your accounts and assets while you restructure your finances and pay back debt.
If you are considering bankruptcy but want to protect your retirement accounts, call our Pennsylvania bankruptcy attorneys at (215) 701-6519 to schedule a free case review with our dedicated team at Young, Marr, Mallis & Associates.
What Happens to Retirement or Pension Accounts When You File for Bankruptcy in Pennsylvania?
While creditors might try to seize various assets during the bankruptcy process, your retirement accounts should be protected. According to Pennsylvania law 42 Pa.C.S. § 5124(b), retirement accounts are exempt from judgment in bankruptcy cases. This means not only are creditors not allowed to seize these accounts and assets, but courts cannot access them during judicial proceedings.
The idea behind protecting retirement accounts is that these accounts are intended for the well-being of the bankruptcy petitioner. Courts are not interested in leaving petitioners with zero money to their name and possibly dependent on the state for assistance. The goal of bankruptcy is to help people bounce back from financial problems, not dig the hole deeper.
On top of that, money in retirement accounts is often inaccessible to account holders. You usually cannot usually withdraw money from retirement accounts without incurring costly fees. Since even the account holders themselves often cannot access this money until they retire, creditors should not be able to do so either.
Recent Pennsylvania Superior Court decisions have left inherited retirement accounts more vulnerable to creditors. If you have retirement accounts that you inherited, they might be seized by creditors or liquidated by bankruptcy courts to pay your debts. In the case of Jones v. McGreevy, the court decided that inherited retirement accounts are treated differently because they are often not set aside for the account holder’s future needs. They are more akin to a windfall or even a checking account. Also, many inherited accounts must be fully withdrawn within a certain period of time, and the money must be placed elsewhere. This means not only do account holders have easier access to this money, but they might be required to pull it from these accounts.
How Do I Protect My Retirement and Pension Accounts in Pennsylvania Bankruptcy Proceedings?
There is a good chance your retirement accounts are already protected. Talk to a lawyer before you file for bankruptcy. Our Philadelphia bankruptcy attorneys can help you identify which of your accounts, if any, are off-limits to creditors and the courts when you file. If your accounts are protected, do not touch them.
People sometimes make the mistake of cashing out retirement accounts to pay off debts to avoid bankruptcy. You do not have to do this. In many cases, people drain their retirement funds to avoid bankruptcy, but doing so only delays the inevitable. You might cash out all your retirement funds only to still end up filing for bankruptcy. It is smarter to just file for bankruptcy anyway and leave your retirement accounts untouched.
If you have inherited retirement accounts, you should speak to a lawyer about how to protect them. Depending on how much money you owe, you might have other assets or property that could be used to pay back debts and satisfy creditors before they get to inherited retirement accounts. Alternatively, you might file for bankruptcy in a way that lets you pay back creditors over time, as discussed in more detail below.
Filing for Bankruptcy with Retirement Accounts At Risk in Pennsylvania
In order to protect retirement accounts that might be vulnerable to creditors, your attorney can help you explore Chapter 13 bankruptcy. Filing for bankruptcy is not a one-size-fits-all process. There are various chapters to consider filing under. While some chapters are intended for businesses, others are meant for individuals.
Among the most commonly filed chapters are Chapters 7 and 13. Chapter 7 focuses on liquidating your assets, accounts, and properties and using the proceeds to repay creditors. Remaining debts may be discharged by the court. This might not be the way to go if you want to protect vulnerable assets like inherited retirement accounts. The bankruptcy trustee might seize assets you want to retain and liquidate them with or without your permission.
Chapter 13 bankruptcy, on the other hand, does not involve the liquidation of assets. Instead, you and your attorney will devise an aggressive yet feasible payment plan to help you pay back creditors over several years. As long as you remain on the plan, your assets, including inherited retirement accounts, should not be taken. This tends to be a lengthy process, but it can be worth it for those who wish to retain their accounts and assets.
Contact Our Pennsylvania Bankruptcy Lawyers to Discuss Protecting Your Retirement Accounts
If you are thinking about bankruptcy but are worried about your retirement accounts, call our Allentown, PA bankruptcy lawyers at (215) 701-6519 to schedule a free case review with our dedicated team at Young, Marr, Mallis & Associates.