Probably the most common question I get asked, in a free initial consultation, is whether or not a client’s 401k or IRA is protected in bankruptcy.   The general answer is YES!!  Your retirement account whether it’s a 401k, an IRA,  an inherited IRA, or a state or federal pension.

One of the biggest mistakes I see is that clients begin to deplete their retirement plans in order to try to pay off their debts, but then realize that it would be impossible to pay it all off and eventually file for bankruptcy.   Do not sacrifice your retirement accounts to pay off your creditors.

When is a Retirement Account Not Protected in Bankruptcy

As a general rule the retirement accounts of a debtor are protected in a bankruptcy filing.   However, there are certain exceptions to this rule that cause the retirement account to lose it’s protections.  The following is a sample of exceptions that cause the retirement accounts to lose their bankruptcy protections:

Withdrawing money from the 401k – If a debtor withdraws the money from a 401k and either transfers it to a regular bank account or purchases assets with that money, those monies or assets will lose the bankruptcy protections of an IRA or 401k.

Irregular transfers of money into a retirement account –  Now that you know that your retirement account is protected you may be thinking, well what if I transfer all my money in my bank account or my stock account into a retirement account, won’t it be protected then?  The answer to that question is NO, transferring assets that are non-exempt into an exempt asset is considered a fraudulent transfer in bankruptcy and can cause substantial harm in your personal bankruptcy filing.


If you are thinking of filing for bankruptcy or just have general questions regarding the process feel free to give our office a call at 954.309.5559 or 305.741.5553 to schedule a free consultation.  We have the ability to see clients in Boca Raton, Fort Lauderdale, Plantation, and Miami, Florida.