Can I Keep My Retirement in Bankruptcy?
Yes, but let’s make sure what the law says.
The bankruptcy code defines what property belongs to the bankruptcy estate. It’s measured on the day your case is filed, and it includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” Your retirement funds are property and they are property of the bankruptcy estate.
But the law protects certain property from the bankruptcy trustee, and it definitely protects retirement funds. In bankruptcy, federal law protects retirement funds that are also exempt from taxation, such as employee retirement plans under the Employee Retirement Income Security Act (ERISA).
Colorado law also protects “…funds, held in or payable from any pension or retirement plan or deferred compensation plan, including those in which the debtor has received benefits or payments, has the present right to receive benefits or payments, or has the right to receive benefits or payments in the future and including pensions or plans which qualify under the federal "Employee Retirement Income Security Act of 1974", as amended, as an employee pension benefit plan, as defined in 29 U.S.C. sec. 1002, any individual retirement account, as defined in 26 U.S.C. sec. 408, any Roth individual retirement account, as defined in 26 U.S.C. sec. 408A, and any plan, as defined in 26 U.S.C. sec. 401, and as these plans may be amended from time to time.”
While federal law protects retirement funds from the bankruptcy trustee so long as the retirement plan is exempted from federal taxation, Colorado’s protection goes much further and protects retirement funds, whether the law exempts them from taxation or not. In a recent Colorado Court of Appeals decision, the court interpreted the Colorado statute to protect an employee retirement fund that was not established under ERISA (Dillabaugh v Ellerton, 259 P.3d 550 (Colo. App. 2011). And, while the language of the Colorado statute seems clearly to protect “any pension or retirement plan,” it is important that the retirement fund is truly for retirement purposes and that it is distinct from any other savings plan.
Because the law protects retirement funds, as your debt problems become worse, it would be wise that you not deplete retirement funds to pay down debt. Rather, when you cannot make debt payments from current income, you should consider bankruptcy to discharge those debts and not spend your retirement.
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The statements of law made here are general statements of law, effective at the time published and subject to change from time to time. These statements are not intended, nor may they be construed, to be applicable to any particular set of factual circumstances nor to any particular person. I recommend that all readers seek the assistance and advice of an experienced bankruptcy lawyer for guidance in their particular circumstances.
© Copyright 2013 David C. Hoskins, licensed Colorado lawyer