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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Attorney Christopher Carson handles bankruptcy cases throughout Waukesha and Milwaukee counties. Call (262) 860-8932.