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Could Chapter 7 Bankruptcy Affect Your Pension?

Could Chapter 7 Bankruptcy Affect Your Pension?

You’ve worked hard to earn a pension, and you may even rely on it for the bulk of your income during retirement. If you need to file for bankruptcy protection, however, you may wonder what will happen to your pension. Will it be subject to the discharge process?

Depending on your circumstances, you may be able to exempt at least part of your pension in a Chapter 7 bankruptcy.

Exempt pensions

Pensions may be fully or partially exempt under bankruptcy laws depending on the type of pension you have. Those classified as fully exempt are considered as such because their assets are technically not part of the bankruptcy estate. Any retirement funds that are tax-exempt under federal law, including 401, 403 and 408 plans, would be exempt from your bankruptcy, as would ERISA-qualified pension or retirement funds.

Other commonly exempt pensions include deferred compensation plans, certain government retirement plans, and plans provided to partnerships, churches, governments or proprietorships.

In addition to these federally exempt pensions, Georgia state law makes the following types of pensions and retirement plans exempt:

  • IRAs
  • IRA payments necessary for support
  • Any other pensions necessary for support

If your retirement account is a pension, stock bonus plan, annuity or profit-sharing plan, for example, you may exempt any amount of the plan you need to support yourself and your dependents, within reason. You simply need to prove to the bankruptcy trustee that these funds are necessary for the living expenses of you and your dependents.

Nonexempt pensions

There are other types of pensions that cannot be exempted under any circumstances. These include those that have been improperly funded or that are not recognized by federal tax law as retirement plans, along with inherited plans (except for plans inherited from a spouse) and plans funded by rollovers from previous funds, if that rollover was noncompliant with federal tax law.

For further guidance on how your bankruptcy could affect your pension, speak with an experienced chapter 7 bankruptcy attorney at Jeff Field & Associates. Call us today at 404-381-1278 or contact us online to set up a free initial consultation.


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