You’ve dedicated years to building your retirement savings. Yet, overwhelming debt can make financial freedom feel out of reach. When all other debt relief options are exhausted, bankruptcy may seem like the only viable path to recovery. Many are hesitant to consider this due to concerns about its impact on Social Security benefits. If you are uncertain how bankruptcy could affect your Social Security, an experienced Rockland County Bankruptcy Attorney can guide you during these challenging times. Please continue reading as we explore what you should know about these matters.
What Happens to Social Security During Bankruptcy Proceedings?
When filing for bankruptcy in New York, it’s essential to understand the fate of your assets. In a Chapter 7 bankruptcy case, non-exempt assets are typically liquidated and sold to repay creditors. For Chapter 13, your income determines a monthly payment to a trustee, who then distributes these payments to your creditors over three to five years, allowing you to keep certain assets.
Social Security benefits are generally safeguarded during bankruptcy proceedings. These benefits are federally exempt, meaning they are excluded from the bankruptcy estate and are not subject to creditor seizure. To ensure their protected status, it’s crucial to keep Social Security funds separate from other money. If these funds are mixed, such as in a commingled savings account, it can become challenging to demonstrate which portion originated from Social Security, potentially jeopardizing their exemption.
You should note that there are some exceptions for certain debts like student loans, federal taxes, and child support. Creditors may be permitted to garnish Social Security benefits if you can’t catch up on these payments.
Are My Other Retirement Accounts Safeguarded?
Generally, retirement accounts are protected in bankruptcy. This includes 401(k)s, 403(b)s, IRAs, and pensions under federal and state laws. This protection is primarily afforded by the Employee Retirement Income Security Act of 1974 (ERISA). However, certain accounts may have specific liabilities and exceptions. For example, while Traditional and Roth IRAs are protected by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), this protection has a limit of $1,512,350. Funds exceeding this amount may be subject to repayment to creditors.
Keep in mind that withdrawals from retirement accounts during or before bankruptcy might be subject to scrutiny and can impact eligibility for certain bankruptcy options. It’s crucial to consult with a qualified attorney to understand how these protections apply to your unique situation.
If you are concerned about what will happen to your Social Security benefits, please don’t hesitate to get in touch with a member of our team as soon as possible. At The Lauterbach Law Firm, we are prepared to help you avoid unnecessary problems in bankruptcy. Connect with our legal team today for guidance and skilled representation.
