Arizona Personal Bankruptcy and Retirement Accounts

personal bankruptcy and retirement accountsEven if your retirement seems to be so far away right now, you have to think about the long-term consequences of your decisions. Facing financial struggles can impact your future and the availability of retirement funds. If you’re planning to go through an Arizona bankruptcy process, you need to have a clear concept of how it’s going to impact your retirement.

Most Retirement Accounts Are Protected in a Bankruptcy

Should you do a bankruptcy filing or should you try to sort things out with your creditors? There are so many factors you have to consider before making the decision and retirement planning is one of them.

The most important thing to understand is that most types of retirement accounts are protected in an Arizona bankruptcy. This means that the funds and assets will not be liquidated in order to pay off debt and give you a discharge.

Even if you do a Chapter 7 bankruptcy filing, you’re not going to lose everything that you own. Arizona has bankruptcy exemptions that protect certain assets and property types.

According to A.R.S. 33-1126, all money held in a retirement plan is exempt as long as the statute is broad enough to cover both ERISA and non-ERISA plans (like an IRA, for example). Keep in mind, however, that the money contributed to an IRA within 120 days of the bankruptcy filing is not exempt.

In this sense, Arizona offers much more generous retirement protection than many other states. The conditions are good enough to prevent invoking federal exemptions – a measure that many people declaring bankruptcy in another state have had to turn to.

Click here for an article on your retirement plan in bankruptcy.

A Detailed Overview of Fully Protected Retirement Accounts

With only a few exceptions, the exemption amounts belonging to retirement accounts in Arizona are unlimited.

Some of the most common plans that qualify for the Chapter 7 bankruptcy exemption in Arizona include:

  • 401(k)s and 403(b)s
  • IRAs
  • Profit-sharing plans
  • Defined-benefit plans
  • Keoghs

Bank and investment account funds will rarely be protected. The same applies to company stock options, certificates of deposit and most mutual funds.

As far as 401(k)s and other retirement accounts are concerned, the protection is valid as long as the money remains inside the account. Many people who are facing massive debt commit the grave mistake of cashing out their retirement accounts. For some of these people, doing a bankruptcy filing would be a much better choice. They’ll be protected from creditors and they’ll also get to keep their retirement savings.

Retirement and Chapter 13 Bankruptcy

If you fail the Arizona means test, you’ll be left with just one option – a Chapter 13 bankruptcy filing.

In the event of a Chapter 13 bankruptcy, your disposable income is taken in consideration to calculate monthly debt repayments. The payment plan remains valid for a period of several years, after which remaining debt will get discharged.

Because retirement accounts are exempt, the balance in them will not be taken in consideration when calculating how much you’ll have to pay to creditors each month.

Taking out funds from your retirement account before the bankruptcy filing can once again be problematic. Even if you’re doing a Chapter 13 filing, it’s important to talk to an Arizona attorney before cashing out any amount or undertaking drastic changes.

To sum it up, an Arizona bankruptcy will not affect your retirement funds in a serious way, as long as you don’t cash out any of your accounts. Refrain from withdrawing retirement funds in an attempt to pay off your debt. Rather, see a bankruptcy attorney to find out if that possibility may provide a viable solution to your problems.

Find out about filing bankruptcy in the military in Arizona.