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For people filing under chapter 7 bankruptcy, some amount of pension can be protected from bankruptcy trustee. This amount depends on which state you reside in as well as on your pension plan. Since all pension plans are different, some retirement plans are protected entirely, while others are partially exempted and some others are not exempted at all, say lawyers of Los Angeles based law firm.
Completely exempted pension
Irrespective of where you live, certain pensions are completely exempted under bankruptcy laws. Such pensions are not part of the bankruptcy estate and therefore you do not need to declare them. These include:
- Retirement funds such as 401, 403 or 408 plansare tax exempt under the U.S. Tax Code
- Any pension or retirement fund which qualifies under ERISA
- Some government retirement plans
- Deferred compensation plans
- Retirement plans provided to a “controlled group” such as churches, partnerships, proprietorships, or governments
- Any retirement plan established and maintained by a tax-exempt organization
Partially exempted pension
In case your pension does not belong to any of the above-mentioned categories, it becomes part of the bankruptcy estate. However, you can still protect it either completely or partially through federal bankruptcy exemptions. Retirement accounts that fall under stock bonus plan, pension, profit-sharing plan, or annuity can be exempted to an amount essential for supporting you and your dependants. This can be done by providing evidence to the bankruptcy trustee that the funds are required for essential expenses like housing, food, utilities, transportation, medical care, etc. The portion of pension used for non-essential expenses is non-exempt. However, this exemption is not available to all debtors.
Non-exempt pension
Certain pensions which are not exempted include:
- Improperly funded plans
- Plans which are not recognised by the U.S. Tax Code as retirement plans
- Employee Stock Purchase Plans
- Inherited IRA plans, except those inherited from your spouse
- Plans that are not compliant with the U.S. Tax Code
- Plans funded by a rollover from a previous fund when the rollover did not comply with the U.S. Tax Code.
Any pension plan that cannot be exempted through these exemptions can be saved by using a wildcard exemption or personal property exemption. You can call (888-297-6203) to consult with experienced bankruptcy lawyers.