According to Forbes.com, at least 12% of people filing for bankruptcy are over age 65. If you fit in this age group, you may worry about losing your retirement funds to your creditors. However, filing for bankruptcy does not mean giving up all your savings.
Knowing what funds are exempt from creditor collection can help you decide if bankruptcy is the right choice for you.
Employer-sponsored savings accounts
Employers often allow employees to invest in a retirement savings account, such as 401Ks, profit-sharing and IRAs. Thanks to the federal Employee Retirement Income Security Act (ERISA), creators cannot collect from these accounts. This law safeguards all funds in a qualifying account, no matter the balance, to keep people off public assistance when they retire.
Individual savings accounts
While employer-sponsored accounts have no limit to federally protected funds, the maximum amount of money exempt from bankruptcy in a private traditional or Roth IRA is $1,512,530 as of 2022. Fortunately, New Jersey bankruptcy laws safeguard funds in non-ERISA accounts. If you choose to utilize the state exemptions instead of federal, the entire balance of your traditional or Roth IRA is off-limits to collectors.
Life insurance
In some circumstances, whole life insurance policies with a cash value cannot go towards bankruptcy collection in New Jersey. To do this, the insurance company must explicitly state that the funds cannot go to creditors. If the policy does not contain that declaration, the federal exemption for non-matured funds is a maximum of $12,625.
Know your retirement funds are safe from bankruptcy collectors by investing in federal or state-protected accounts.
