Most 401k and ERISA-qualified retirement accounts are safe from creditors in Chapter 7 and Chapter 13 bankruptcy. Here's when protection applies.
In most cases, you can protect funds in a 401k and other tax-exempt retirement accounts from your creditors in bankruptcy, whether you file for Chapter 7 or Chapter 13. Your 401k is almost always safe because it, and other Employee Retirement Income Security Act (ERISA) accounts, typically aren't part of your bankruptcy estate. Because ERISA retirement plans have transfer restrictions that protect the funds in your account from creditors, a 401k account can’t be used to pay your creditors.
Non-ERISA Retirement Accounts Get Exemption Protection Up to a Federal Limit
Regardless of your state, federal law protects retirement accounts exempt from taxation under certain sections of the Internal Revenue Code. For instance, IRAs are protected up to $1,711,975 per person under federal law and the federal bankruptcy exemptions. (11 U.S.C. § 522(n); amount applies to cases filed between April 1, 2025, and March 31, 2028.)
Many states also have exemptions that cover particular retirement accounts in bankruptcy. Keep in mind that investment accounts aren't included unless they qualify as a protected retirement account.
When Is a Retirement Account Not Protected in Bankruptcy?
Your 401k or retirement account loses its special protection if you withdraw the money before filing or if the plan isn't legitimate. If you withdraw money from your retirement account and purchase other assets or place it in a regular bank account before filing your case, it won’t receive the special protections afforded to retirement funds. You'll need to protect the new asset with another exemption to properly protect it in bankruptcy.
In Chapter 7 bankruptcy, the bankruptcy trustee can take or sell your "nonexempt assets," which are property that isn’t protected by an exemption, and distribute the proceeds to your creditors. In Chapter 13, you pay the value of nonexempt assets through the Chapter 13 repayment plan.
As mentioned above, non-qualified savings plans, investment accounts, and employee stock options aren't protected. You can check with your employer's plan administrator about your retirement plan's qualification. You'll also want to check your state's exemption laws to determine whether your assets will be safe in bankruptcy.
Meet With a Bankruptcy Lawyer
A bankruptcy lawyer will review all of your assets and help you take the proper steps to protect them in bankruptcy. For related guidance, learn about protecting bank accounts in bankruptcy and protecting other property in bankruptcy using bankruptcy exemptions. You'll find more information about filing for bankruptcy as a business debtor in Bankruptcy for Small Business Owners.
