Filing for bankruptcy in Maryland can raise concerns about the fate of retirement accounts.
Fortunately, the law protects most retirement accounts during bankruptcy, allowing individuals to retain their savings while seeking debt relief.
Bankruptcy and retirement accounts explained
The federal government categorizes bankruptcy into Chapter 7 and Chapter 13. Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 sets up debt repayment plans. Both categories provide exemptions to protect assets, including retirement accounts.
Protection for retirement accounts
The law safeguards various retirement accounts from creditors in bankruptcy cases. This protection covers 401(k)s, 403(b)s, profit-sharing and money purchase plans, as well as Individual Retirement Accounts and Roth IRAs. This safeguard is consistent across both bankruptcy chapters.
Maryland’s statutes further secure retirement savings. The state exempts ERISA-qualified retirement plans from creditors. For example, this exemption protects pensions and profit-sharing plans. Thus, these accounts typically remain unaffected in bankruptcy, preserving retirement savings.
Exceptions to protection
Despite broad protections, certain exceptions exist. Inherited IRAs might not receive the same level of safeguarding as personal IRAs. Moreover, assets not yet deposited into a retirement account at the time of bankruptcy filing do not qualify for protection.
Consequences of financial planning
Bankruptcy offers a pathway to mitigate or reorganize debt. Maryland’s approach to protecting retirement accounts ensures individuals do not have to compromise their long-term financial well-being for immediate relief.
Understanding one’s bankruptcy case and the available protections can provide comfort in difficult financial times. This knowledge empowers individuals to navigate bankruptcy with confidence.
