Most people want to know what will happen to their homes and vehicles during bankruptcy. It is understandable to feel concerned about two things that are so integral to the safety and security of a person. However, it is important for people in Connecticut to understand how personal bankruptcy will also affect their financial accounts.
Bank accounts are treated differently in Chapter 7 and Chapter 13 bankruptcy. When it comes to Chapter 7, filers can expect to keep their accounts, but not necessarily most or even all of the funds. A person may be able to keep some of the money in the account should it meet certain exemption criteria. In Chapter 13, filers usually keep their accounts and the money in them. This is because Chapter 7's goal is liquidation while Chapter 13's is repayment.
Most 401(k) accounts are usually safe in terms of bankruptcy. Whether filing for Chapter 7 or Chapter 13 bankruptcy, individuals can generally expect to keep these accounts, even those held through either current or past employers. However, there may be some exceptions, so it is a good idea to check with a 401(k) administrator or employer to verify.
IRA retirement accounts are more vulnerable during bankruptcy. However, like with bank accounts, a person filing for Chapter 13 can count on slightly more protection than those seeking Chapter 7. However, since the current exemption for IRAs in bankruptcy is $1,362,800, most people can feel secure about their IRA accounts when moving forward with bankruptcy.
It can be tempting to quickly withdraw money from various accounts before filing for bankruptcy, but this is often misguided. Funds in accounts like 401(k)s and IRAs are less vulnerable than other cash, which means that individuals can protect their retirement savings while also pursuing personal bankruptcy. Still, these are only a few examples of which financial accounts bankruptcy can affect, so people in Connecticut who are considering filing may want to consider speaking with a knowledgeable attorney first.