Perhaps one of the most dangerous things a person in Arkansas can do in the depths of financial crisis is start to ask “what if” without taking the additional step of consulting an experienced bankruptcy attorney. Posing such a question without the benefit of input form an impartial party only tends to make an already stressful situation worse. That’s not the condition to be in when trying to get a handle on debt management.

One of the most sensitive questions that may surface for a person considering options for debt relief may be about retirement savings. Are these funds protected? Will they be wiped out by either a Chapter 7 or Chapter 13 bankruptcy filing?

Federal bankruptcy laws do provide for protection of a number of assets. State laws may also offer specific additional protections and an attorney can assess what might be covered.

Filing for bankruptcy also does give the filer a respite from creditor action by triggering an automatic hold on all collection actions. Homes are safe from foreclosure action. A car can be protected from repossession. The protection of retirement funds depends on the form in which they are held.

If the money is simply held in a savings account and available to the filer, then it may be that the funds could be sought for surrender by creditors. However, if the money is held in a 401(k), is part of a pension plan, or is held in some other form of recognized retirement account, the funds are exempt from bankruptcy exposure.

There is one other caution in regard to recognized retirement accounts, though. They cannot be touched before the bankruptcy filing has been made. If a person filing for protection converts any funds into cash before the proceedings start, the funds become unprotected assets.

The lesson to take away is that individuals considering bankruptcy should be sure to consult with an attorney before taking any action to be sure their rights are protected.

Source:, “Will my 401(k) be Safe if I File for Bankruptcy?,” Justin Harelik, June 19, 2013