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Retirement Accounts and Ohio Bankruptcy Laws



Retirement Accounts Are Protected in Ohio Bankruptcy


When filing for Chapter 7 or Chapter 13 bankruptcy in Columbus, Ohio, you can protect your retirement accounts.If you are struggling financially, you may be concerned as to whether you can keep your retirement accounts when filing for Chapter 13 or Chapter 7 bankruptcy protection. In most bankruptcy filings in Ohio, the debtor can keep his or her 401(k), pension, IRA, or other retirement account.


Retirement Account Withdraws May Have Penalties & Tax Implications, & Loss of Bankruptcy Exemption

It may be tempting to tap into retirement accounts during times of financial hardship, however it is very important NOT to take a partial or full early distribution or hardship withdrawal from your retirement account without first discussing your financial situation with a qualified Ohio Bankruptcy Lawyer. Any portion of your retirement account that is withdrawn may have penalty and income tax consequences. Further, if bankruptcy is the right option for you, then the money that you withdraw from your retirement plan can be taken or may be required to be repaid to the bankruptcy trustee. So, before you decide to use your retirement account monies to pay credit card debt or medical debt or any other unsecured or secured debts, consult with experienced bankruptcy and tax attorney Ken Sheppard for proper legal and tax advice.


We have seen far too often clients who have withdrawn tens of thousands of dollars from their retirement accounts to pay off credit card debt and medical debt only to still file for bankruptcy several months later after they have taken that hardship or early withdrawal from their retirement account. And the adverse income tax implications and penalties associated with those types of withdrawals will further drain the money you have spent so long and hard to accumulate over the years.


Retirement accounts are often protected when filing for chapter 7 bankruptcy or for chapter 13

Although Congress made it more challenging to file for bankruptcy protection in 2005 when it enacted BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act), this piece of legislation also softened the rules concerning retirement accounts, thus making owning most types of retirement accounts a favorable investment for debtors. BAPCPA simplified some of the retirement account rules by eliminating how the states treated certain types of retirement plans differently from other types of retirement plans.


Under BAPCPA, ERISA (Employment Retirement Income Security Act) and non-ERISA qualified plans are protected from the Bankruptcy Trustee. The trustee is prevented from liquidating these plans to pay creditors of the debtor's bankruptcy estate.

Examples of types of ERISA Plans


    401(k) plans

    403(b) plans

    Profit sharing plans

    457(b) deferred compensation plans

    Governmental plans


Examples of types of Non-ERISA Qualified Plans



    Roth IRS's

    SEP IRA's for small business owners

    SIMPLE IRA's for self-employed individuals


An ERISA plan is one that is typically established by an employer, which satisfies certain IRS guidelines, and is tax exempt. ERISA qualified retirement plans are not property of the bankruptcy estate. The bankruptcy trustee will have no control over your ERISA plan.


When is my retirement account not protected?

Removing Money From Retirement Accounts Also Removes its Exemption From Bankruptcy

As mentioned above, most retirement accounts are safe from creditors in chapter 7 and chapter 13 cases. But, there are times when those retirement account monies are not protected.


For example, if you withdraw money from your 401(k) or other retirement account, that money is now unprotected because it is cash in hand and no longer part of your ERISA plan. If you file for bankruptcy, you will be forced to look for other exemptions to protect that cash in hand.


If the IRS has filed a valid federal tax lien against you, the IRS may be able to reach your retirement assets.

During your bankruptcy case, the IRS will be prevented to collect against you, but as soon as your Chapter 7 case is concluded (which takes about 4-5 months after you file your chapter 7 bankruptcy petition), the IRS may begin again its collection practices. In a Chapter 13 reorganization plan, the IRS tax debt will be included in your plan.


Your retirement account may not be protected if you are going through a divorce.

The other spouse may have been awarded a portion of your retirement account through a QDRO (Qualified Domestic Relations Order) or a property settlement.


It is important to discuss details of your specific situation at your free consultation with experienced Columbus Ohio Bankruptcy Attorney, Kenneth Sheppard, Jr. in order to determine which exemptions you may qualify for and what your best debt relief option may be.


Email or call us at (614) 523-3106 today for a free initial bankruptcy consultation


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Sheppard Law Offices - Columbus

Sheppard Law Offices

The Columbus, Ohio bankruptcy debt relief and taxation law office of Sheppard Law Offices, LPA is conveniently located just inside I-270 off of Cleveland Ave. Our offices provide a short drive from throughout Central Ohio including counties of Franklin, Delaware, Knox, Marion, Licking, & Fairfield. We regularly serve  Debt  & Tax needs of clients from  Columbus, Westerville, Bexley, Dublin, Sunbury, Delaware, Fredericktown, Johnstown, Centerberg, New Albany, Gahanna, Pickerington, Grandview, Upper Arlington, Clintonville, Groveport, Pickerington, Pataskala, Reynoldsburg, Groveport, Lewis Center, Worthington, Granville, the Short North, Hilliard, Plain City, Grove City, Newark, Mt. Vernon, Canal Winchester, and Lancaster.

Columbus Ohio Office

2600 Tiller Lane, Suite A

Columbus, Ohio 43231

Telephone: (614) 523-3106

Newark, Ohio Office

843 N. 21st Street, Suite 108

Newark, Ohio 43055

Telephone: (740) 345-7138

Akron-Canton Office

Belden Village Tower, 200

Canton, Ohio 44718

Telephone: (330) 409-2876

Mt. Vernon, Ohio Office

11 West Gambier Street

Mt. Vernon, Ohio 43050

Telephone: (740) 392-0404

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