Bankruptcy gives people in debt a chance to start over without losing everything, but does that include their retirement accounts? There is a lot of misconception about bankruptcy rules. If you consider taking this grave step, knowing what it involves is essential. Do the laws and procedures of filing bankruptcy in Georgia include giving up your retirement accounts? 

Bankruptcy Laws By State

The first thing you need to know is that the bankruptcy system falls under federal jurisdiction. In other words, it is a process controlled by the federal government, so the rules are the same in each state. However, the states do have some control over certain aspects of the filing. 

States, for example, have unique property exemption regulations, which determine what you keep and what you give up in Chapter 7 bankruptcy. Because the first phase of the means test entails comparing your income to your state’s median income, where you reside influences whether you qualify for certain forms of bankruptcy, too.

Georgia has its own set of bankruptcy exemptions that apply to the type of bankruptcy most consumers would file – Chapter 7. 

What is Chapter 7 Bankruptcy? bankruptcy lawyer retirement

Chapter 7 is what they call liquidation bankruptcy. It offers the most direct way to start over with a clean slate, so many people choose this option. To be qualified for Chapter 7, you must show to the bankruptcy court that your average income is insufficient to cover even a fraction of your debts.

In most personal Chapter 7 bankruptcy proceedings, all property is safe under a state law exemption. Most personal Chapter 7 bankruptcy proceedings last only 4 – 6 months if there are no non-exempt assets. As soon as you get the court discharge, you may begin repairing your credit. That differs somewhat from the other form of personal bankruptcy – Chapter 13. 

What is Chapter 13 Bankruptcy? 

Chapter 13 bankruptcy requires you to repay some of the debt you owe via a repayment plan. You design a budget based on your monthly income and living expenditures and inform the bankruptcy court how much you can afford to pay toward your debts each month. You also keep all your assets.

The court and the bankruptcy trustee review your suggested repayment plan. Once the court authorizes the plan, all you have to do is pay your disposable income to the trustee and file your tax return each year. Once completed, your remaining debt (other than student loans) goes away.

Do those exemptions include your retirement accounts, though, in either type of bankruptcy? That is an important distinction to make because that money is your lifeblood when the time comes for you to stop working. 

Do You Lose Your Retirement Accounts If You Declare Bankruptcy? 

In Georgia, and most other states, for that matter, the answer is no, with a few exceptions. The bankruptcy law excludes some types of retirement accounts from protection, though. They include:

  • Individual Retirement Accounts (IRA) under IRC 530(1)(b), subject to certain limitations
  • Pension and retirement plans qualified under the Employee Retirement Income Security Act of 1974 (ERISA) 
  • Government retirement plans under IRC 414(d)
  • Deferred compensation plans under IRC 567
  • Tax-deferred annuity plans under IRC 403(b) (b)

Bankruptcy exemptions play a significant role in protecting retirement monies, too. They are both federal and state exemptions, and that is where your location comes into play. 

Bankruptcy Rules in Georgia

Georgia has special regulations that prevent the Chapter 7 trustee or creditors from seizing the debtor’s assets.

According to Georgia law, a debtor may hide from creditors up to $23,500 of equity in their own dwelling, $3,500 in a car, and $5,000 in household items, among other things

When it comes to 401k retirement plans, you can exclude the total value of your 401k assets. This is one of the most debtor-friendly laws in Georgia. 

You keep everything you own in Chapter 13, but the amount of money in your retirement accounts may factor into your repayment plan. 

So, if you are considering personal bankruptcy in the state of Georgia, your retirement accounts are likely protected.