Property of the bankruptcy estate includes all legal or equitable interests of the debtor in property at the time the case is filed. Section 541(b) of the bankruptcy code provides a list of exclusions from property of the bankruptcy estate, and 11 U.S.C. § 522 provides exemptions that apply to property of the bankruptcy estate.
The 2005 BAPCPA amendments addressed the issue of retirement accounts, amending § 541(b) of the Bankruptcy Code to explicitly exclude "any amount . . . withheld by an employer from the wages of employees for payment as contributions . . . to . . . an employee benefit plan.” 11 U.S.C § 541.
The policy of the courts have been to protect retirement benefits, even considering the broad inclusion of property in the bankruptcy estate. The debtor's retirement plans are excluded from the bankruptcy estate when contributions are earned by the debtor (there can be some issues regarding inherited and awarded retirement accounts).
The intent of a bankruptcy is not only to provide the debtor with a fresh start but to also provide for the creditors any funds to which they may be entitled. Retirement accounts are an exclusion to the property of the bankruptcy estate, but liquidating retirement accounts may cause the account to lose its exclusion status. Occasionally, a debtor will liquidate their retirement account prior to filing and purchase non-excluded or non-exempt assets with the funds, or use the liquidated retirement funds to re-pay close family members and friends. Transactions like those can complicate the bankruptcy filing.
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Upon filing bankruptcy, the bankruptcy estate is created, and the bankruptcy estate includes all the debtor’s legal and equitable interests. But certain assets of the debtor are excluded from the estate. Retirement accounts have received protection from the normally highly inclusive nature of the estate. But a debtor is wise to leave the retirement accounts unliquidated prior to filing the bankruptcy case. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.