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If you are considering bankruptcy, it is important to know how each of your assets will be dealt with. Fortunately, even in a Chapter 7 “liquidation” bankruptcy, your retirement accounts will be largely protected from creditors. Read on to find out more about how retirement accounts are treated under state and federal regulations.

Bathed in golden warmth

Federal Regulations

Thanks to the Bankruptcy Abuse and Consumer Protection Act of 2005, all states have the same regulations for protecting retirement accounts in bankruptcy. Employer-sponsored 401(k) accounts are almost always exempt from bankruptcy proceedings; they can only be accessed to pay taxes owed to the IRS or delinquent alimony and child support payments. Individual retirements accounts (IRAs) are protected up to $1 million, but all assets over that level will become part of the bankruptcy estate and will be subject to liquidation to pay creditors. Any rollover amount, even if it is over $1 million, will be safe from bankruptcy proceedings and from creditors.

Illinois Regulations

Illinois law defends retirement accounts more aggressively. These regulations do not apply to bankruptcy, but rather to other judgment actions brought by creditors in Illinois. As with federal bankruptcy proceedings, 401(k) accounts are safe from creditors. Under Illinois law, IRAs are also always protected. No matter the size of the account, IRAs are safe from creditors unless you are delinquent in child support or alimony, in which case the funds in the IRA can be accessed to pay these debts.

Protecting Your Accounts

Bankruptcy judges often frown upon debtors who convey assets out of their name or into protected accounts just before declaring bankruptcy; they may view it as fraud. Consult a CPA or attorney to discuss your options for protecting your retirement funds and other assets.

Even if you are declaring bankruptcy, you have the right to protect your retirement accounts. To learn more about assets that you may be able to exempt from bankruptcy, schedule a free consultation with an experienced bankruptcy attorney at Cutler & Associates.


The materials available at this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use and access to this website or any of the links contained within the site do not create an attorney-client relationship. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.