When you file bankruptcy, there are certain assets the bankruptcy laws let you protect. The laws are designed so that you aren’t left destitute for filing bankruptcy. One of the assets we can protect are retirement accounts. The laws want to make sure you don’t have to lose money that you will need to rely on years down the road.
What Retirement Accounts Are Protected in Minnesota?
Retirement accounts, namely 401(k)s, IRAs, and pension plans are protected. There are some nuances like if you inherited a retirement account or possibly received it from a divorce, that may mean it isn’t a protected asset, but overall, these assets are almost always protected. And if you do have a retirement account that was inherited or awarded in a divorce, setting up a call with an attorney is your best starting point.
How Does Bankruptcy Affect a 401(k) Loan?
Many people take out 401(k) loans from their retirement account, as an effort to try to avoid filing bankruptcy. If you do have a 401(k) loan, and still find yourself needing a bankruptcy, the 401(k) loan passes through the bankruptcy. What this means is that you will just continue to pay yourself back on the loan. A 401(k) loan can’t be discharged in a bankruptcy. Either you will continue to make payments on it, or you can elect to receive a 1099 tax form, that will show it as a retirement distribution instead, and not a loan.
Contributing During a MN Bankruptcy
You also can continue to contribute to your retirement accounts whether you file a chapter 7 or a chapter 13. So you don’t have to stop contributing to your retirement account just to file a bankruptcy.
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