While a withdrawal from a pension plan or IRA may be taxable income, they typically do not cause a problem in filing a bankruptcy. Regarding whether continued withdrawals should be included in income in a Chapter 13, clients can argue that the remaining retirement funds are needed for retirement.
Disclosure Is Key
The balance of an IRA or pension plan should be treated as an asset and disclosed as such in the bankruptcy petition. The federal bankruptcy rules provide an exemption for IRA funds and pension funds however, so those funds are a protected asset outside of abnormal activity.
IRA Disbursements In A Chapter 7
When you change the character of IRA funds or pension funds by making a withdrawal from the fund and placing the funds into your personal checking or savings account, those funds enter the bankruptcy estate. Like all other funds that enter the bankruptcy estate, you and your attorney will work to protect them by either using the wild card exemption, showing the funds were used for normal living expenses, or exempting the asset you purchased with the funds (Household furniture, etc).
You Deserve To Protect Your Retirement
The fact that the bankruptcy rules allow for exempting retirement funds goes toward a showing that the goal of bankruptcy is not to take everything the client owns, in exchange for forgiving their debt. Instead, the goal is to position the client in such a way that after the bankruptcy they have a reasonable chance at financial success.
Call A Bankruptcy Attorney
If you have any questions, please call me at 704.749.7747 I’m happy to answer questions and the call is free.