How to Protect a 401k Under California Bankruptcy Law
Filing for bankruptcy typically means that your credit is wiped clean, but it also means that you forfeit most, if not all of your assets that could be used to pay off outstanding debts. This includes retirement and/or brokerage accounts. If you do have a retirement account, you will want to take steps to protect it.
Before you come to the decision to file for bankruptcy, your phone and mailbox were probably blowing up with calls and notices from creditors threatening to seize your retirement and other assets. While you want to be rid of your debt, you also want to protect whatever assets you are legally allowed to maintain.
- Seek counsel from a knowledgeable bankruptcy attorney. Your attorney can discuss the benefits of the different forms of bankruptcy – chapter 7 or chapter 13. A chapter 7 bankruptcy will result in liquidation of the debtor’s assets in order to pay creditors. A chapter 13 bankruptcy allows the debtor to retain their respective assets, and then pay the creditors over three to five years depending on the court directed plan.
- Consider the potential benefits and liabilities of selecting the Uniform Federal exemptions or the California Civil Procedure Code Section 704. In the state of California, bankruptcy filers have the option to choose and therefore gain certain exemptions for assets – for example cars, or certain special assets. If the main concern is to preserve 401K assets, either statute will accomplish this.
- Declare your 401K as part of your bankruptcy filing, and declare it as an exempt asset under the appropriate state of federal provision.