All You Need To Know About Your Pension Check And Creditors

10 Aug All You Need To Know About Your Pension Check And Creditors

Other people are fans of entertainment stars or sports franchises, or clothing designers.

Should I feel foolish that I’m a rabid fan of a subsection in an exemption law?*

Not on your life: California Code of Civil Procedure 704.115 rocks in the world of debtor/creditor tussles. And the retired debtor wins because 704.115 absolutely protects retirement income from the reach of the retiree’s creditors.

This bit of law makes all of the income received by a Californian from a retirement plan absolutely exempt from standard creditors.

The scope of the exemption is breathtaking: not only is the corpus (the body) of the retirement plan safe from creditors, the money paid from that plan is absolutely exempt from creditors. Forever.

Alternative to bankruptcy

For those who are retired, California exemption law alone may make them safe from creditors without filing bankruptcy.

Creditors who get a judgment usually look to collect from the debtor’s income or from their real property. A retiree who rents or who owns a home that is underwater or protected by the homestead exemption may have nothing a creditor can get. Bankruptcy may be unnecessary, except as a way to end the collection hassle.

Exemption can protect cash

The exemption continues to shield the money after receipt.

California Code of Civil Procedure 704.115 (d) says:

After payment, the amounts described in subdivision (b) and all contributions and interest thereon returned to any member of a private retirement plan are exempt.

Part of my pre bankruptcy planning for people facing bankruptcy includes setting aside retirement income in an account separate from other income or assets. If the client has savings that are not exempt, I want them to consume the non exempt money, and save the exempt income.

As long as they can trace the income in the separate account to the retirement plan, the money is theirs to keep, even through bankruptcy.

Other than the exemption for retirement income, there is little protection for cash in the California exemption system. For retirees, §704.115 makes it possible to claim both the large homestead exemption afforded those over 64 and to protect cash, if it can be traced to a retirement asset.

Three cheers for the Code of Civil Procedure!

* Maybe that’s just par for the course if you’re a California bankruptcy lawyer?

Image courtesy of ph-stop

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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