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Retirement and Bankruptcy: How Safe is Your Nest Egg?

by Adam Mack, J.D.
You have worked your entire life to take care of yourself and your loved ones.  And if you were lucky enough to put some money aside you may even have a 401k, Roth IRA, or some other retirement account.  However, despite your best efforts, you may still be facing financial strain and may even be considering bankruptcy.
So, if you do file bankruptcy what happens to your retirement account?  In Kansas we are fortunate to have a generous retirement benefit exemption in bankruptcy for qualifying retirement accounts.  This exemption is created by Kansas statute and has no monetary limit.
So the big question is what types of retirement accounts are protected?  This is a wide ranging question with many intricacies, but Kansas law states that any pension, annuity, retirement, disability, death or other benefit is exempt from process (including bankruptcy) so long as that person retired from municipal government, the state school system, as a member of the judiciary (i.e. Judges and Justices), or as policemen and firemen, or the public employees retirement system generally (commonly referred to as KPERS).
Of course there is also protection for those who retire from a private occupation.  The Kansas exemption statutes also state that pension and retirement money received by a pensioner within three months of execution, attachment, or garnishment (or bankruptcy) is exempt so long as it is necessary for the financial support of the pensioner or the pensioner’s family.


Of course no law is complete without its exceptions.  The primary exception to be aware of here is that a pension is NOT exempt from claims made by a recipient or alternate payee of a qualified domestic support obligation (i.e. child support or maintenance/alimony).
If you are reading this article, you may be simply exploring what will happen to your retirement account in a bankruptcy.  Or in the alternative you may be contemplating borrowing from your retirement account in lieu of filing bankruptcy.

I strive to avoid broad assumptions.  However, in my professional experience there are certain tell-tale signs that someone needs to speak with a bankruptcy lawyer.  Some of these signs are taking out pay day loans, title loans, maxing out multiple credit cards and only paying the minimum balance (if even that), and of course considering cashing out your retirement account.

Any one of these events does not mean that you should or need to file a bankruptcy, but it does mean that you are strapped for money and looking for a way out.  Often so many of my clients could have avoided bankruptcy all together if they had just visited with me a few months earlier, but if you wait until you feel like you need to talk to a bankruptcy lawyer, then you may be past the point that you have no choice but to file bankruptcy.
It is conceivable that a person contemplating bankruptcy has what they consider to be a retirement account which does not qualify for the retirement bankruptcy exception.  You have worked too hard and too long to lose your nest egg unnecessarily.  While this blog article highlights certain aspects of the retirement exemption, bankruptcy law is complicated and a mistake may jeopardize the money you plan to retire on.  Talk to an experienced bankruptcy lawyer to help you analyze the risks you may be taking by filing for bankruptcy protection.


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!