One of the most common fears about filing for bankruptcy is losing retirement savings. For most people in Wisconsin, that fear is unfounded. Retirement accounts receive strong protection in both Chapter 7 and Chapter 13 bankruptcy.
ERISA-Qualified Plans Are Fully Exempt
401(k) plans, 403(b) plans, pension plans, and other ERISA-qualified retirement accounts are fully exempt from bankruptcy — there is no dollar limit. The U.S. Supreme Court has held that these accounts do not become part of the bankruptcy estate, meaning creditors cannot touch them and you keep them entirely regardless of how much is in them.
IRAs
Traditional and Roth IRAs are protected up to approximately $1.5 million per person (this amount adjusts periodically). For most individuals, this covers their entire IRA balance. SEP-IRAs and SIMPLE IRAs are fully exempt with no cap.
Wisconsin’s Additional Exemptions
Wisconsin provides additional exemptions for public employee retirement benefits and certain annuities. The state also exempts a portion of home equity, a vehicle, household goods, and tools of trade — meaning bankruptcy often allows people to keep far more than they expect.
What This Means for Your Decision
Many people drain retirement accounts to pay debt before considering bankruptcy — then file anyway when the debt keeps mounting. This is almost always a mistake. Retirement funds that would have been fully protected are gone. The debt often wasn’t eliminated. Understanding the exemptions before making any decisions is essential.
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- How long does bankruptcy stay on your credit report?
Attorney Christopher Carson handles bankruptcy cases throughout Waukesha and Milwaukee counties. Call (262) 860-8932.
About the author. Christopher S. Carson, J.D., M.A., has practiced law in Milwaukee for 34 years. He holds an M.A. in International Security Studies from Georgetown University, where he was the Bradley Fellow, was formerly with the American Enterprise Institute, and is a contributing editor at the New English Review. Read the full biography.
More on this: Bankruptcy practice at Carson Law Office · Schedule a free consultation · (262) 860-8932
Related reading: Chapter 7 vs. Chapter 13 Bankruptcy in Wisconsin: Which One Fits Your Situation? · How Long Does Bankruptcy Stay on Your Credit Report? · The Difference Between Chapter 7 and Chapter 13 Bankruptcy
This article is general information about Wisconsin law, not legal advice about your situation, and reading it does not create an attorney-client relationship.