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Will My Bankruptcy Affect My Retirement Plan?

Will My Bankruptcy Affect My Retirement Plan?

By Ginger B. Kelly, Esq.
March 19, 2020

Quite often I get asked by clients and prospective clients, how will bankruptcy affect my 401(k), IRA, pension, and other retirement plan? My typical response is, “In most Chapter 7 and Chapter 13 situations, most ERISA qualified plans are exempt, meaning you can keep them, but this all depends upon your specific situation.”

What does exempt mean?

Let me explain. First, it’s important to understand the legal term, “exempt.” In the Oxford dictionary, the word exempt means, “free from an obligation or liability imposed on others.” According to Black’s Law Dictionary, exempt is a verb that means to relieve, excuse, or set free from a duty or service imposed upon the general class to which the individual exempted belongs.

Long story short, real life bankruptcy in the US today is not like Monopoly or the Game of Life. You don’t lose everything. You can exempt most possessions up to certain amounts and in some cases, in unlimited amounts. This means that you get to keep those exempt possessions if the possessions are considered exempt and you claim that exemption on your bankruptcy forms and schedules. When you avail yourself of an exemption, neither creditors nor the trustee can take that exempt thing, auction it or sell it to pay your creditors for any reason.

Which Retirement Accounts are Exempt?

When it comes to your retirement accounts, since 2005 virtually all ERISA-qualified retirement accounts and pension plan funds are exempt from creditors (however, there are some exceptions). But what is ERISA-qualified? Black’s Law Dictionary tells us that the word, “ERISA” means, Employment Retirement Income Security Act, which is, “a congressional created minimum standard that assures employees of a sound and equitable retirement plan. Certain types of ERISA retirement accounts and plans are 401(k)s, 403(b)s, RAs (Roth, SEP, and SIMPLE with a few limitations), Keoghs, profit-sharing plans, money purchase plans, and, defined-benefit plans.

Now because Chapter 7 is also known as a “total liquidation” of all your assets, actually your ERISA qualified retirement accounts are safe. The assets liquidated are only non-exempt assets. In most of joint and individual bankruptcy cases, debtors get to keep their cars, their home, their furniture and clothing, most everything they need to live and a few more things like some jewelry, some cash, burial plots, tools of the trade up to certain amounts and even a little bit extra, like ERISA qualified retirement accounts or plans. The same is true for Chapter 13 cases.

Although Chapter 13 debtors must repay creditors out of their disposable monthly income, the exemptions are the same regarding ERISA qualified retirement accounts and savings plans.

A Few Exceptions and Limitations

First, it may be important to note that most general savings accounts, investment accounts, and stock option plans are not protected if they aren’t ERISA-qualified or fall under a special wild card exemption option. Your bankruptcy attorney can discus wild card exemptions with you.

Traditional and ROTH IRAs

Since 2019, Traditional and Roth IRAs are protected under bankruptcy exemption law, up to a total value of $1,362,800. This amount adjusts every three years to account for cost of living increases. The $1,362,800 amount will adjust again in 2022. SEP and SIMPLE IRAs, similar to employer-sponsored 401(k)s, profit-sharing plans, and pensions, are fully protected in a bankruptcy.

Withdrawn benefits

Although the funds in your retirement accounts are exempt from creditors (subject to the limitations discussed above), retirement benefits paid to you as income aren’t exempt. Retirement benefits withdrawn and bot paid back as a loan are considered income.

If you are paying back a loan, like a 401(k) loan, and you used those funds to pay your creditors claims before filing for bankruptcy, things may be different. Speak to your bankruptcy attorney and assess what to do in this situation.

If you are withdrawing retirement funds because you are retired and at that stage of life, there is a chance you may be judgment proof and don’t need to file for bankruptcy. This is an event best discussed with our lawyer.

In a Chapter 7 bankruptcy, the trustee cannot take any retirement benefits not necessary for your support, but it may take amounts paid to you above and beyond those set limits.

In a Chapter 13 repayment plan, retirement income will help determine what portion of your unsecured debts you must repay. A portion of your retirement income may or may not be used by the trustee to pay creditors. This is why you need an attorney.

There are so many options to choose from in bankruptcy. Knowing all the ins and outs of each choice is not only difficult, it’s daunting. Different options are permissible or not, in different states. Chapter choice, timing, multiple bankruptcies and property transfers are things to think about, just to name a few. Dealing with unraveling the information and the challenging legal analysis is always best left to the professionals. My clients prefer to get the counsel of a professional. Based on our Google reviews, it is clear why our clients are satisfied and that they made a wise choice.

Attorney Ginger Kelly is now accepting clients in the Dudley, Webster, Sturbridge, Fiskdale, Southbridge, Saundersdale, Oxford, North Oxford, Charlton, Charlton Depot, Auburn, Leicester, Rochdale, Spencer, North Brookfield, Brookfield, East Brookfield, West Brookfield, Warren, Brimfield, Warre, Wales, Palmer and Holland Massachusetts. We accept clients from Rhode Island on a case-by-case basis.

We can explore whether or not bankruptcy is the easy way out for you. Our office is located in an easy-to-find place in Charlton, MA. When you arrive, you will be greeted by Attorney Kelly and meet in a very confidential and comfortable space and we typically will have a lovely pot of coffee or a cup of tea waiting for you when you arrive.

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ABOUT ME: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like agriculture, conservation and sustainable homesteading. To find out more, Google us, visit our website, find us on AVVO.com or call us at (508) 784-1444 and please, leave a detailed message, your contact information and telephone number. Attorney Kelly will return your call as soon as possible.
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NOTICE: This is an Advertisement. This post is not legal advice. Consult your attorney. Attorney Kelly does NOT provide legal advice to anyone via social media or anywhere over the Internet. Any and all electronic posts and writings, by Attorney Kelly, does NOT establish any type of attorney-client relationship, whatsoever, neither perceived, actual, material, implied or other. We cannot stress enough, if you need personal legal advice, always see your attorney. Do not rely upon Attorney Kelly’s posts, writings or any Internet information on websites or social media for your own personal legal advice. Seek legal advice and representation from your own personal attorney.

Copyright © 2020 by Ginger B. Kelly, Esq., all rights reserved.

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Filed under 401(k), Bankruptcy, Chapter 7, Collection, credit card debt, Debt, Debt Collection, Estate Planning, Exemption, Exemption, Financial, Financial Planning, Law, Legal, lending, loan, Loans, Massachusetts, Massachusetts law, Retirement Savings, Rhode Island, secured interest, security, tax refund, tax return, Uncategorized

Utility Shut-off Solutions

Attorney Ginger B. Kelly

Good advice from Attorney Ginger Kelly, licensed since 2004

Utility Shut-Off Solutions

by Ginger B. Kelly, Esq., January 11, 2019

I’ts that time of year, again.  The time when utility costs sky-rocket into the netherworld of bills you wish you could pay, but can’t.  But wait, don’t be too hard on yourself.  There are a few solutions to help you navigate this rocky road of uncontrollable utility bills.

Mass.gov has multiple solutions for certain people.  For example, if you live in Massachusetts, and if all the people residing in your home are age 65 and over, your electricity or gas cannot be shut off without permission from the Department of Public Utilities (DPU).  If you are experiencing financial hardship and one of the following applies, your electric or gas cannot be shut off without permission from the DPU:

  • You, or someone in your home, is seriously ill;
  • You have an infant under 12 months in your home;
  • All adults in the home are age 65 or older and a minor child resides in the home;
  • It is between November 15 and March 15 and the utility service is needed to heat your home.

If you meet these requirements and your electric or gas has been shut off, you should call your utility company directly. They will ask for proof of your situation, such as a child’s birth certificate, doctor’s note for a serious illness, or income-based proof of your inability to pay. 

If, after speaking with your utility company, your electric or gas service is not restored, you should contact the Department of Public Utilities at (617) 737-2836 or 1-877-886-5066 (toll-free) or complete their online complaint form.

If your water is provided by the city or town where you live, you need to contact the city or town directly to have your service restored. The Department of Public Utilities has a list of all the water district areas in Massachusetts.

If your water is provided by a company, your water cannot be shut off if one of the following applies:

  • Everyone in your household is age 65 or over;
  • You, or someone in your home, is seriously ill;
  • You have an infant under 12 months in your home;
  • All adults in your home are age 65 or older and a minor child resides in your home;
  • You are a tenant whose landlord is responsible for the water bill.

If, after speaking with your utility company, your water is not restored, you should contact the Department of Public Utilities at (617) 737-2836 or 1-877-886-5066 (toll-free) or complete their online complaint form.

Oil, Propane and Wood (Un-Regulated Utilities)

There are no specific legal protections for utility customers who heat with oil, propane, or wood. However, providers of these utilities are often willing to work with consumers who find themselves in difficult situations. You should contact your service provider directly and if you cannot get your utility restored, you should file a complaint with CARD.

How can I get help making my payments?

You may seek help from your local fuel assistance office if you are having trouble paying your utility bills. You do not have to be unemployed to get help. In addition, utility companies are often willing to work out discount, budget, and payment plans. You can learn about your fuel assistance options here.

How can I find out about my other options?

If you are facing a utility shut-off, including your electricity, gas, water, or telephone due to unpaid bills, filing Chapter 7 bankruptcy may help keep your service connected. Under federal law, if you file for bankruptcy, the utility company cannot change, refuse, or disconnect your service.  Contact an experienced bankruptcy attorney to find out your options.

If you are poor and meet certain income guidelines, you may qualify for legal aid.  Another suggestion is not to use your income tax return refund check to pay for your back bills, but use it to pay for your bankruptcy and be free from most all of your crushing debt and back utility bills.

At our office, there are a number of ways to pay for your bankruptcy, including using your federal and/or state income tax return refunds.

If you have other legal questions, especially if you are contemplating bankruptcy or dealing with collections or debt collection law suits, Attorney Ginger Kelly is now accepting clients in the Dudley, Webster, Sturbridge, Fiskdale, Southbridge, Saundersdale, Oxford, North Oxford, Charlton, Charlton Depot, Auburn, Leicester, Rochdale, Spencer, Brookfield, East Brookfield, West Brookfield, North Brookfield, Warren, Brimfield, Wales, Palmer and Holland.  We can explore whether or not bankruptcy is the easy way out for you.  Our office is a quiet and comfortable place to talk, and a free pot of coffee will be waiting for you when you arrive.

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ABOUT ME: Attorney Kelly is an attorney in good standing, licensed to practice in both the Federal District and State Courts of Massachusetts and Rhode Island. Her law practice is focused on consumer debt, finance, bankruptcy and District Court matters. Attorney Kelly is experienced in both criminal and civil trial work. On a personal note, Attorney Kelly enjoys writing and other things, like conservation and agriculture. To find out more, visit our website, or call us at (508) 784-1444.

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NOTICE: This is an Advertisement. This post is not legal advice. Consult your attorney. Attorney Kelly does NOT provide legal advice to anyone via social media or anywhere over the Internet. Any and all electronic posts and writings, by Attorney Kelly, does NOT establish any type of attorney-client relationship, whatsoever, neither perceived, actual, material, implied or other. We cannot stress enough, if you need personal legal advice, always see your attorney. Do not rely upon Attorney Kelly’s posts, writings or any Internet information on websites or social media for your own personal legal advice. Seek legal advice and representation from your own personal attorney.

Copyright © 2018 by Ginger B. Kelly, Esq., all rights reserved

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Filed under Bankruptcy, Chapter 7, Collection, credit card debt, Debt, Debt Collection, Empowerment, Filing, Financial, Financial Planning, Legal, Legal Rights, Massachusetts, Massachusetts law, Massachusetts town ordinance law, payment, practical stuff, Uncategorized, Utility Bills, Utility Shut-Off