Your Pension and Bankruptcy

Our Montgomery, Selma, and Central Alabama bankruptcy attorneys are often asked if a pension or retirement plan is safe when you file for Chapter 7 bankruptcy or Chapter 13 debt consolidation plan. Bankruptcy laws provide broad protection for pension and retirement plans that are both created through an employer or directly by an individual. In fact, the bankruptcy code identifies each type of a retirement or pension plan that is also identified by the Internal Revenue Code section which qualifies it for a certain specific tax treatment.

Retirement plans are generally excluded as part of the bankruptcy estate. This means that you get to keep your retirement regardless if you file a Chapter 7 bankruptcy or Chapter 13 debt consolidation plan. Because retirement plans are not part of the bankruptcy estate then these plans do not come under the control of the bankruptcy trustee. If the bankruptcy trustee does not have any authority over the retirement plans, then there is no possible way for the trustee to seize any of these assets to be used to the benefit your unsecured creditors; however, you must still disclose any retirement or pension plans that you have on your bankruptcy schedules. Such accounts include educational individual retirement accounts or IRAs, pension and retirement plans that qualify under ERISA, government retirement plans that are either state or federal, and tax-deferred annuity plans.

In Alabama we use our own state exemptions and not the federal exemptions. In a bankruptcy case that our Montgomery bankruptcy lawyers prepare, regardless if it’s a Chapter 7 or Chapter 13, we simply list the retirement or pension plan and choose which exemption it would fall. Some limitations do vary; however, the exceptions to the rule are extremely limited. If you have any questions regarding a retirement plan or pension plan, please discuss it in detail with our Montgomery, Selma and Central Alabama bankruptcy attorneys. There are many online articles regarding pensions and bankruptcy, but most of these articles only address the pension or retirement plan and what federal exemptions apply. Someone who is a resident of Alabama must be careful when reading these articles because Alabama uses its own set of exemption limits. Because Alabama uses it’s own exemption laws we must be very careful when we list a retirement or pension plan in a Chapter 7 bankruptcy or Chapter 13 debt consolidation plan. These are a few examples of what will be excluded from the Alabama exemptions: an employee stock purchase plan, plans that were improperly funded, plans that do not qualify as retirement plans under any type of identified section of the IRS tax code, and an IRA inherited by someone other than a spouse, plans that have been rolled over into a new fund that is not in compliance with the IRS code, or plans that have previously received unfavorable determination from the Internal Revenue Service. However, in four decades of practice we have only seen a handful of retirement plans which would not be exempt under Alabama Law.

When our Montgomery, Selma, and Central Alabama bankruptcy attorneys meet with clients we always ask that they give us as much information as possible about their pension or retirement plans so that we can make sure that the plan is exempt from the trustee’s control. Bankruptcy and debt consolidation plans can be amended, but its best to know in the beginning all the retirement plans that a client may have.

At The Sellers Law Firm, we are always happy to answer any questions that you have regarding pension and retirement plans. All consultations are always free, and we can generally meet with you within 24 hours. We have four offices in Central Alabama to serve you. We are located in Montgomery, Selma, Greenville, and Troy. Please call or text us at 334-LAWYERS (529-9377) to set an appointment. Our phone lines are answered 24 hours a day! You may also reach us by using the Contact Form on our website. Remember that doing nothing changes nothing so act today!