If you’ve decided to file for Chapter 7 bankruptcy, you’re probably worried about how your decision may affect your pension. Is it exempt? Or will it be ‘liquidated’ along with the rest of your nonexempt assets?
In New York, the answer depends on what kind of pension you are receiving. While many types are 100% exempt, others are only partially protected and some are not protected at all. Below is a general breakdown of common pensions and how they are viewed under the U.S. Bankruptcy Code.
Pensions that are fully exempt
Certain pensions have been declared separate from the bankruptcy estate, so your trustee can’t typically seize and distribute them. They include:
- Government pension and retirement plans
- ERISA-qualified retirement funds and pensions
- Educational IRAs
- Tax-exempt funds such as 401, 403 and 408 plans
- Retirement plans established and maintained by tax-exempt groups
- Annuity plans that are tax-deferred
- Deferred compensation plans
While there is no limit on how much money may be exempt using these plans, be careful not to make IRA contributions or set up any annuities shortly before filing. Such a move could be treated as a fraudulent transfer and undone by your trustee.
Pensions that are partially exempt
Any pensions that don’t meet any of the above criteria are technically part of your bankruptcy estate, but you may not have to surrender most or all of it. If you receive income from a profit sharing plan or regular annuity, for example, you may be able to keep it if you can demonstrate that you need the money to pay for essential expenses like food, housing, and transportation. Any funds not spent on necessities for yourself and your family may be subject to seizure.
Pensions that are non-exempt
Certain pensions cannot legally be exempted and must be surrendered to your trustee unless you can protect them with a wildcard exemption or similar exemption arrangement. These pensions include but are not limited to:
- Plans that do not comply with or are not recognized by the U.S. Tax Code
- IRA plans inherited from anyone except a spouse
- Stock purchase plans for employees
- Plans that have been improperly funded
- Plans funded by a non-approved rollover
Like partially exempt plans, these pensions can be protected by a wildcard or other applicable exemption.
If you are planning to file for Chapter 7 bankruptcy and worried about how your particular pension type will be affected, contact a New York bankruptcy attorney who can examine your situation and show you the best way to exempt and therefore protect your pension funds. You deserve to have as many financial resources as possible to sustain you as you gradually regain solvency. Jayson Lutzky is a bankruptcy attorney with an office in the Bronx, New York. Mr. Lutzky offers free in-person initial consultations and can help you regain your financial freedom. Call 718-329-9500 to set up an appointment or visit www.MyNewYorkCityLawyer.com to learn more.