Are IRAs Exempt From Creditors During Chapter 7 Bankruptcy?

In a Chapter 7 bankruptcy (also known as “liquidation”), a court-appointed trustee is tasked with collecting and selling the debtor’s assets and using the proceeds to pay the creditors. However, the trustee cannot take everything. The debtor can legally retain ownership of certain assets, in whole or in part. These bankruptcy exemptions include various forms of retirement savings accounts.

Individual retirement accounts (IRAs) are substantially exempt under Chapter 7. Self-employment IRAs (SEP-IRA) and rollover IRAs are fully exempt. This means that the debtor can keep all monies held in either type of account as long as no fraud is involved. Traditional IRAs are protected within limits: Chapter 7 debtors can exempt funds of up to $1.3 million. The 11th Circuit Court of Appeals, which has jurisdiction over Georgia, has ruled that a Roth IRA — in which an owner deposits after-tax dollars and can withdraw accumulated funds tax-free at a certain age — is not part of the debtor’s bankruptcy estate. This means the funds in a Roth IRA are fully exempt in this state.

It is important for Chapter 7 filers to take full advantage of these exemptions. Many individuals rely upon IRAs and other savings plans to substantially fund their retirement. These accounts often comprise the major source of peoples’ assets in old age. It usually takes decades of diligent savings to build up sufficient retirement funds. Many IRA holders would simply not have enough time left in their working lives to rebuild retirement account balances if creditors could take all of that money. A Chapter 7 bankruptcy is designed to give debtors a ‘fresh start’ in their financial lives. It would make no sense to give people relief from debt only to face a life of poverty in retirement due to lack of savings.

Bankruptcy law is complex and exemptions are not automatically granted. Anyone who is considering filing for bankruptcy or seeking other forms of debt relief should contact a qualified bankruptcy attorney.

With six offices in the Atlanta, Marietta and Athens areas, Jeff Field & Associates is one of Georgia’s premier bankruptcy and debt relief law firms. Our attorneys guide each client through all available remedies with patience and compassion. If you are drowning in debt, facing foreclosure or being constantly harassed by bill collectors, feel free to contact us online or call 404-381-1278 for an initial consultation.