Retirement Assets Safe in Bankruptcy
By Cathy Moran, California Bankruptcy Lawyer on Jan 31, 2007 in General Bankruptcy Information
One of the few debtor friendly changes to the Bankruptcy Code made last year was increased protection for retirement savings. Prior to October, 2005, the bankruptcy exemptions in the Code protected IRA’s “to the extent necessary for the support of the debtor”. Traditional pensions and 401(k) plans were absolutely protected because the anti alienation clause in the governing agreement put the funds beyond the reach of creditors. State law protection for retirement savings varied.
The 05 amendments created a 1 million dollar exemption for retirement savings, available to all debtors, regardless of where they live or what exemption systems are available to them in their bankruptcy filing.
Repayment of pre bankruptcy loans from 401(k) plans after the filing of the bankruptcy was also protected by permitting employers to continue withholding repayments; by excluding those loans from the scope of the discharge; and most importantly, by excluding retirement loan repayments from the Chapter 13 calculation of how much the debtor has to repay in the Chapter 13 plan.
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