One big fear often leads to a nervous question when I first meet with clients: “Will I lose my retirement when I file for bankruptcy?” The short answer, at least in Northern California, is generally no.
The two California exemption lists (lists of what you get to keep after your case is over) both list retirement accounts. This means that your creditors cannot get at your retirement and you will still have it after your case completes.
What’s important to remember, however, if that your retirement account actually has to qualify as a genuine retirement account under federal tax law. Therefore, IRAs, union pensions, private retirement account and similar products are exempt and protected in bankruptcy.
You’ll run into problems, however, if you try to get cute when you have a retirement account and file a case in Oakland bankruptcy court. I have had clients tell me during their first visit to my office that they have a retirement account. When I ask further questions and request documentation, I’ll occasionally discover that the clients are actually talking about an investment account. When I question them on it, the response I’ve received is, “Well, yeah, we’re going to use those investments to fund our retirement!” Whoops!
This is kind of like common law marriage in California: there ain’t no such thing! Either your account qualifies under tax law as a retirement account or it isn’t a retirement account. It doesn’t matter if the client intends to use the funds as a retirement account. If the IRS don’t see it as a retirement account, it’s not a retirement account.
If you live in the Oakland area and are considering bankruptcy, you should talk with an experienced bankruptcy attorney about all aspects of your finances. Be sure to make sure you talk about how your retirement is going to be handled.
Image credit: By Fletcher6 (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons
