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Retirement savings and bankruptcy exemptions

Citizens around the United States are getting older. As baby boomers reach retirement age, more people are relying on retirement income to survive. However, the recent recession has also left many people struggling with large amounts of debt and very limited employment opportunities. Therefore, many Tennessee residents are considering bankruptcy as a way to solve their financial struggles.

In particular, many are considering Chapter 7 bankruptcy. Under Chapter 7 bankruptcy, consumers liquidate their property to pay down debts. However, not all property is sold. Under both federal law and Tennessee state law, certain property is exempt from sale during a bankruptcy.

Under 11 U.S.C section 522(B)(3)(C), the debtor's retirement savings are exempt the bankruptcy estate. Therefore, debtors will be able to keep the funds if they choose to file a Chapter 7 bankruptcy. However, in order for the retirement account to fall under this section of the bankruptcy code, it must be exempt from taxation under specific sections of the Internal Revenue Code -- including sections 401, 403, 414, of 501(a).

If the retirement account is not in compliance with the Internal Revenue Code, it may still be exempt from the bankruptcy estate if the account is in substantial compliance with the Internal Revenue Code, the reason for noncompliance was not the fault of the debtor and the IRS or a court had not previously determined that the retirement account was not in compliance.

Chapter 7 exemption rules, including the rules for retirement can be difficult to understand without the right legal experience. People considering filing for Chapter 7 -- especially older individuals -- should make sure they understand how these exemption rules will affect their future retirement income.

Source: U.S. Government Printing Office, "11 U.S.C. § 522," accessed Aug. 24, 2014

Source: U.S. Government Printing Office, "11 U.S.C. § 522," accessed Aug. 24, 2014

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
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