Does bankruptcy drain your 401k?

[dnooman]

I’m guessing that one’s 401k account is considered an asset, but I’m wondering about it’s vulnerability, since they’re a great tax shelter.

[Una_Persson]

From: http://www.401krolloveradvisors.com/ira_faq.html

In general, bankruptcy law protects pensions and retirement savings. No matter how much money you have in your 401(k), creditors can’t touch it if you declare bankruptcy. In the past, Individual Retirement Accounts were treated the same way, but not under bankruptcy reform.

Under the new bankruptcy law, the first $1 million saved in IRAs will be protected from creditors. Any amount over that is fair game for the debt collectors. What if you changed jobs and rolled your 401(k) money into an IRA? Money in IRAs that comes from rollovers from 401(k)s would be protected from creditors.

[FatBaldGuy]

Under the new bankruptcy law, the first $1 million saved in IRAs will be protected from creditors. Any amount over that is fair game for the debt collectors.

Reading this just got my dander up. I know this is GQ, so I won’t go off on a rant here, but the very idea that someone who has $1 million in an IRA should be declaring bankruptcy is just foreign to me.

[The_Chao_Goes_Mu]

@FatBaldGuy

Reading this just got my dander up. I know this is GQ, so I won’t go off on a rant here, but the very idea that someone who has $1 million in an IRA should be declaring bankruptcy is just foreign to me.

I can agree to a point but let’s say you’ve built up a good business, bought a huge house, had a few nice cars, invested a lot of your money, yada, yada, then everything blew up in your face, you can no longer pay the mortgage, you can’t afford the car payments, you lost on your investments, etc. You still owe your creditors but you have no money, with the exception of your retirement account. You still have the right as well as anyone else to file for bankruptcy. Also, one million dollars in your retirement account is not that much. (Unless you have that much in your account at age 30 and you don’t plan on retiring until age 65 or 70)

I’m not picking on ya, just giving you an alternate way of seeing it.

[racer72]

@FatBaldGuy

Reading this just got my dander up. I know this is GQ, so I won’t go off on a rant here, but the very idea that someone who has $1 million in an IRA should be declaring bankruptcy is just foreign to me.

I helped someone file bankruptcy a couple years ago. One of the first couples called up by the trustee at the 431 meeting filed bankruptcy over $51 million in debt against 1.5 million in assets, most in an exempt retirement plan. This would be a case where the exemption is a small fraction of the debt.

FYI, the couple invested heavily into an import business just before a longshoreman’s union called a strike. The 6 month delay in receiving their product made it virtually worthless resulting in huge losses financed through short term high interest loans.

[Operation_Ripper]

@FatBaldGuy

Reading this just got my dander up. I know this is GQ, so I won’t go off on a rant here, but the very idea that someone who has $1 million in an IRA should be declaring bankruptcy is just foreign to me.

Well, take this from a bankruptcy attorney, the scenario of a petitioner with a million in his 401k does not come up that often, if at all, here in AL.

The most I’ve seen is a bit over $100k. With Social Security tanking over the next few decades, if a guy tries to put some money away to support himself and his family when he gets old, more power to him I say.

The real issue here should the predatory lending practices of creditors or insurmountable medical bills that drove him to file bankruptcy. :mad: