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Pensions and bankruptcy in New York

Many people who are preparing to file for Chapter 7 or Chapter 13 bankruptcy protection in New York worry that they will lose their New York State pension and other retirement assets. The reality is that in practically all cases, you will be able to keep your retirement accounts.

New York bankruptcy exemptions are quite broad, and when you finally file, the law allows you to choose the state or federal exemption system, which will provide you with the opportunity to protect multiple assets, including pensions. Contrary to popular belief, the real purpose of the bankruptcy laws is to give you a fresh financial start, not take away everything you have worked hard for.

In 2005 Congress overhauled the Bankruptcy Abuse and Consumer Protection Act (BACPA) and, as a result, pensions are now considered exempt property. Even if you opt to use the New York state exemption system, Section 522 (b)(3)(c) of Title 11 of the United States Bankruptcy Code automatically protects tax-exempt pensions and retirement accounts from seizure by creditors. These accounts include:

  • Standard pension plans
  • IRAs
  • 401(k) plans
  • 403(b) plans
  • 453 plans
  • SEP and Keogh plans
  • Tax-deferred annuities

There is also no limit on the exemption amounts, so in most instances, all of your tax-exempt retirement assets will be protected for the duration of your bankruptcy. The only possible exception would be any annuities you may have set up shortly before filing. It’s also a good idea to refrain from making any contributions to an IRA within 90 days of filing, as it could be misconstrued as a fraudulent transfer, which could result in a dismissal of your bankruptcy case.

If you opt for the federal exemption system, then you may also be able to claim other exemptions related to your pension. If you become ill or disabled or need the money to take care of your family, then you can claim exemptions against any income from profit-sharing plans such as stocks and annuities. In essence, your pension will be protected and so will be any future benefits that may be a part of your retirement plan. There are some exceptions to this immunity, mainly if you were to be employed by a member of your immediate family at the time the retirement account was established, but for the most part, all future income from retirement plans are protected too.

If you live in New York and are considering filing for Chapter 7 or 13 bankruptcy but are worried about how your retirement accounts might be affected, then please call an experienced New York bankruptcy attorney. They will help you eliminate your debt and get the fresh financial start you need without you losing your retirement fund or any of your cherished possessions. You can reach Jayson Lutzky, a New York City personal bankruptcy attorney, at 718-329-9500. He offers free in-office consultations.

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