Category Archives: Exemptions

As I’ve previously described in various posts to this blog (see here, for example), personal property is primarily at issue in a Chapter 7 bankruptcy, in which the liquidation of your property “funds” the bankruptcy. (In a Chapter 13 bankruptcy, the monthly payments you make to the court from your personal income stream ”fund” the bankruptcy, not the liquidation of your property.) In most cases, the “exemptions” provided for in the Bankruptcy Code can protect most, if not all, of your personal property from liquidation in a Chapter 7, though, as always, this is greatly dependent on the amount and type of property you own.

For bankruptcy purposes, a retirement account such as an IRA or 401(k) is simply a type of personal property, and, as with other types of personal property, such as an automobile, there is an exemption available in the Bankruptcy Code for it. (Actually, depending on what type of account you have, there are a couple of different exemptions available.) Unlike a car or your jewelry, however, the exemptions available for most retirement accounts is not capped at a certain value-level. Under the Federal exemptions, for example, you can exempt only $3225.00 in value for an automobile. Under the same set of exemptions, on the other hand, you can exempt ALL of the retirement funds that are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code.

There are certain exceptions to the exempt status of retirement accounts, particularly if they are subject to the repayment of federal income taxes, or, if using the state rather than Federal exemptions in Michigan, where I practice, if the retirement accounts are subject to a repayment order for child-support or other domestic support obligations.

But, in short, if you are considering filing for bankruptcy, your retirement account is, for the most part, not something you need to worry about losing. Further, if you are considering drawing upon your otherwise-exempt retirement account to pay off debt that is dischargeable in bankruptcy, you should consult a bankruptcy attorney before taking such an action. You may be sacrificing a secure future for a short-term delaying of the inevitable.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.