Understanding bankruptcy retirement account protection in NY on your own can feel very confusing, especially if you don’t have any experience with bankruptcy. But it is essential that you understand the bankruptcy asset exemptions in NY before you proceed with filing your case.
At Grady BK, PLLC, we strive to provide all of our New York clients with the personalized and one-on-one legal attention that they need. Our goal is to provide easy to understand guidance that equips you with the knowledge you need to confidently move forward with your case. In this article, we will be discussing bankruptcy retirement account protection in NY and whether or not you can keep your tax advantage retirement accounts when filing for bankruptcy.
Federal vs. New York Exemption Rules
Whether you are filing for Chapter 13 or Chapter 7, protecting your retirement funds in NY is most likely a top priority. After all, this is the nest egg that you are probably depending on for the future. The good news is that there are both federal and New York Laws that provide certain protections for retirement funds during bankruptcy.
The Employee Retirement Income Security Act, or ERISA, provides protection by requiring retirement funds in a trust to be considered separate from your personal assets. This helps to provide some distinction so that certain retirement funds are not considered to be in your ownership. While there is a limit to how much the federal bankruptcy exemption will cover (currently $1,711,975.00), it is rare that someone has over that amount in their retirement funds.
There are also similar New York exemptions that you may be able to use depending on how they compare to the federal exemptions for your specific case. New York also provides specific protection for retirement accounts, making them exempt from any collection efforts from creditors (100% of qualified retirement accounts are protected).
To better understand bankruptcy exemptions in New York, it is best to seek out the help of a bankruptcy attorney. An attorney will be up-to-date with state and federal protections and how these apply to your specific retirement funds.
Types of Protected Retirement Accounts
There are many different types of retirement accounts, and the type of account you have will dictate whether or not it is protected. The ERISA covers several common retirement accounts, including:
- 401(k) plans
- Pensions
- Profit-sharing plans
- Deferred compensation plans
- FSAs
- HMO plans
- HRAs
- Prescription drug plans
- Disability insurance
- Dental and vision plans
If you have any retirement accounts not included in this list, that could mean that they are not ERISA-qualified. If that is the case, they may be vulnerable if you file for bankruptcy and could be considered to be a personal asset. If this is the case with your retirement accounts, this would be the right time to take advantage of federal and state exemptions.
Common Mistakes to Avoid
If you are worried about bankruptcy retirement account protection in NY, the good news is that most retirement funds are protected. Most people will have ERISA-qualified accounts and won’t usually have balances above the federal exemption limit. However, even if this is the case, there are certain things you should avoid doing before filing for bankruptcy.
Extracting Retirement Funds
The number one thing you should never do before you file for bankruptcy is try to use your retirement funds. If you do this, you will most likely need to explain how the funds were used. And if they were used for unnecessary expenses or dispersed to friends and family, the bankruptcy trustee will most likely require you to return them.
In some cases, you may be able to extract retirement funds and use them for necessary living expenses, but you need to be very cautious when doing this.
Mixing Funds
You should also make sure you aren’t mixing exempt and non-exempt retirement funds. For example, you do not want to mix ERISA-qualified funds with retirement accounts that aren’t exempt, such as bank accounts or brokerage accounts.
Not Disclosing Funds
Also, it is crucial that you accurately disclose all of your retirement accounts when filing for bankruptcy. Trying to hide any type of fund or asset can lead to serious issues, so this is never a good way of trying to protect your assets.
To avoid making any other type of mistake before filing for bankruptcy, you should take the additional step of hiring a New York bankruptcy attorney. They may be able to help you find additional ways of protecting your retirement funds without causing issues for your bankruptcy case.
FAQ:
Will I lose my retirement if I file Chapter 7?
No, many people are able to keep their retirement when they file for Chapter 7 as long as it is a qualified, tax-exempt account.
Are IRAs protected in New York bankruptcy?
Yes. As long as you started the account yourself (you did not inherit the IRA from someone who died) than it will also be protected.
New York’s Top Compassionate Bankruptcy Attorney
Understanding the impact of bankruptcy on retirement accounts can be very overwhelming, which is why you should never try to navigate this on your own. At Grady BK, PLLC, we have extensive experience handling bankruptcy cases and can help you move forward with confidence and peace of mind. We will be there every step of the way, providing expert guidance so that you understand what your options are.
At Grady BK, PLLC, we provide one-on-one legal attention so that each of our clients feels like they are our only client. So, whether you have questions or simply need assistance getting the process started, we are here to help.
Contact us today at 315-299-9005 to discuss your situation with a bankruptcy attorney in New York. Our team at Grady BK, PLLC, is here to help, no matter where you are in the bankruptcy process.
