One of the reasons that people may delay or avoid filing for personal bankruptcy is concern about their future financial stability. They worry about what may happen when they lose their revolving lines or credit or have to liquidate some of their assets to repay their creditors during bankruptcy.
With that said, most people understandably don’t know the details of how bankruptcy works, as this isn’t a subject that is regularly taught in school. They only have a rough idea about the process and may not understand any of the state-specific rules. They know, for example, that sometimes people have to liquidate their assets, but they may not know when that is necessary or what assets are at risk.
Those trying to set resources aside for retirement may worry that a bankruptcy filing would endanger their retirement savings. Does someone filing for bankruptcy in Pennsylvania need to worry about liquidating their retirement savings to pay their creditors back?
Retirement savings may qualify for an exemption
Only Chapter 7 bankruptcy requires asset liquidation. Even then, only individuals who cannot exempt their property have to worry about liquidating their assets. If someone files a Chapter 13 bankruptcy, they do not have to worry about their retirement savings. However much they have set aside has protection from liquidation because there is no requirement to use their assets to pay creditors.
In a Chapter 7 bankruptcy, some asset liquidation is occasionally necessary. Even then, filers can protect some of their most valuable assets. There are Pennsylvania state bankruptcy exemptions that can protect someone’s retirement savings.
People can usually protect deposits of up to $15,000 per year. However, funds deposited within 12 months of the bankruptcy filing may not have exemption protection. There are also exemptions for pensions managed by employers. A retirement account inherited from someone else generally is not eligible for the same consideration.
People who file for personal bankruptcy in Pennsylvania also have the option of choosing federal bankruptcy exemptions. The amount of retirement savings or pension benefits that people can protect changes every three years. Currently, as of the 2022 adjustment, those using federal bankruptcy protections can exempt up to $1,512,350 in retirement funds from liquidation in a Chapter 7 bankruptcy.
Ultimately, learning more about what property is eligible for exemption during bankruptcy may help people feel more confident about filing.
