Can I Keep my 401K in Bankruptcy?

A couple just recently moved to Detroit Michigan and began meeting with several attorneys in Michigan about filing for bankruptcy and trying to find out what the difference was from their home state and Michigan. This was not new to them as they had met with other bankruptcy attorneys in their home state of Minnesota.  One of the benefits about having a federal bankruptcy law is that several laws apply across the board no matter which state you live in. One of the  bonuses and some negatives is using a states exemptions during bankruptcy. One common question filers worry about is how secure is their retirement if they file bankruptcy?

Over the past 25 years or so the old fashioned company pension has been slowly phased out and replaced with the 401(k) program.  Gone are the days in which a person works for one company for 20 years or more and then goes home with a modest monthly pension check.  Most companies that offer any type of retirement do so with the employer contributing a portion of earnings into a retirement account that is controlled by an investment firm.  This money is then withdrawn monthly during the golden years of a person’s life.  However, due to the rising number of bankruptcy filings a lot of people are asking questions about the Minnesota bankruptcy law and wondering how their retirement may be affected if they file bankruptcy.

Qualifying Plans

According to the Employee Retirement Income Security Act (ERISA) that was passed in 1974 several different plans are made to protect people’s money while they are still working and saving.  The ERISA sets out different rules about when employees may begin contributing to a retirement plan, the length of time they must work before they completely own their retirement plan and other similar guidelines.  These types of plans are called defined contribution pension plans.  It simply means that the employer and employee both put money into the account but there is no guarantee as to the amount that will be received at retirement.

Example plans

The most popular example is the 4010(k) and profit sharing plans.  With a 401k plan employees designate a certain amount of their earnings to be invested into an account.  With the profit sharing plan, the employer has a formula that dictates how much of the yearly profit will be given to each employee.

Effect of Minneapolis Bankruptcy on 401k

People that file a Minneapolis bankruptcy do not need to worry about losing their retirement funds.  The bankruptcy code is very clear with this particular item.  All retirement accounts are not subject to bankruptcy law provided that the total of all the accounts is $1 million or less.  Those people that have been able to accumulate this much in retirement over the years through diligent saving can rest easy knowing that their money is secure.

With most legal proceedings there are occasional exceptions.  Anyone that has a 401k plan should contact a reputable Minneapolis bankruptcy attorney and determine how the Minnesota bankruptcy law affects them before filing with the bankruptcy court.