Individuals dealing with financial hardship due to job loss, medical issues or other challenges may require relief. A personal bankruptcy filing can help people limit collection efforts and diminish their financial obligations. Bankruptcy halts collection activity and can result in the discharge of eligible debts.
Chapter 7 bankruptcy is the fastest means of discharging debts. Those who can pass a means test may be eligible for a Chapter 7 bankruptcy. However, people refer to Chapter 7 bankruptcy as liquidation bankruptcy. In cases where the filer has extensive property, they may have to sell some of their assets or use their financial resources to pay their debts before the courts discharge any remaining balances due.
Those who have certain resources may worry about Chapter 7 bankruptcy, in particular, as they do not want to risk the loss of key assets. Retirement savings and pensions can be among the most valuable assets anyone owns. Do people have to worry about the loss of their retirement resources if they file for Chapter 7 bankruptcy?
Some retirement resources are exempt
The good news for those considering Chapter 7 bankruptcy is that asset liquidation is not always mandatory. In fact, the majority of people who successfully discharge debts in Chapter 7 filings do not have to liquidate any of their property. There are exemptions available for various resources. People can preserve certain types of assets while still qualifying for a Chapter 7 discharge.
Those pursuing Chapter 7 bankruptcy in Oregon can theoretically protect their retirement savings depending on the type of retirement benefits they have accumulated. Public Employees’ Retirement System benefits (PERS), IRA, 401(k), 403(b) and pensions are among the types of retirement savings people can exempt from liquidation in a Chapter 7 bankruptcy.
Typically, any retirement resources that are subject to the rules of the Employee Retirement Income Security Act of 1974 (ERISA) are theoretically exempt in a Chapter 7 bankruptcy. Unlike many other bankruptcy exemptions, which have set financial limits that apply, retirement savings exemptions cover the entire account or pension.
People who are unaware of their retirement savings protections might make the mistake of withdrawing retirement savings to try to handle their debts. In such cases, they may face tax complications and may have to cover a penalty for the early withdrawal. They also lose out on retirement savings that they could otherwise potentially preserve.
Discussing personal resources can help those considering a Chapter 7 bankruptcy determine whether it is the right choice given their circumstances. Retirement savings and pensions do not automatically preclude people from pursuing a Chapter 7 filing.
