For many people, retirement means taking it easy and spending time on favorite activities. Therefore, you are right to be concerned about your future if you are experiencing financial difficulties, no matter how close to retirement you are. Bankruptcy may be a solution through a Chapter 7 discharge, but an important question is whether you can keep your retirement savings in bankruptcy in Arizona.
While you do have options and the laws support debtors, you will still need guidance from a Chapter 7 bankruptcy attorney in Arizona to protect your retirement savings. Some background is also informative.
Chapter 7 Bankruptcy Discharge
One of the most common types of bankruptcy for individual filers and married couples is Chapter 7, which is often referred to as discharge bankruptcy. The reason is that you eliminate qualifying debts as you go through the process, which typically takes around 4 to 6 months. Still, there are two points to know about challenges with Chapter 7:
- The rules to qualify are extremely strict and demanding. You are eligible if your income falls below the state median income level for Arizona or you meet the criteria of the Means Test. This secondary assessment ensures that a filer is not abusing the bankruptcy process.
- The Chapter 7 bankruptcy trustee will take over your assets upon filing, and your property is subject to liquidation. Your assets could be sold to pay creditors if they bear some value and could be easily liquidated. However, the bankruptcy trustee may not opt to sell when there would be no productive return. You might be able to keep your assets.
Your Retirement Savings and Bankruptcy Laws
After reviewing the details that impact your Chapter 7 case, you might wonder how you can safeguard your retirement savings in bankruptcy in Arizona. The key is a federal law, the Employee Retirement Income Security Act (ERISA) that contains numerous protections for workers. One important one for bankruptcy is being able to protect your hard earned retirement savings. The bankruptcy trustee cannot liquidate these accounts in Chapter 7, and the vast majority of retirement plans offered by employers as an employment perk are covered by ERISA.
Note that your retirement savings will not be liquidated unless and until you begin taking withdrawals. Once the funds are in your account, these are controlled by the bankruptcy trustee upon filing your petition. In addition, you should realize that when you are receiving income through a retirement plan, this also may affect eligibility for Chapter 7.
How Exemptions Work in Chapter 7
Besides the protections of ERISA, you also have the opportunity to leverage exemptions. Liquidation of your assets is a concern for many people in Chapter 7, but there is an advantage under bankruptcy laws. In Arizona, you are allowed exemptions that enable you to protect interests in property and avoid having them sold. Exemptions are the dollar value you are allowed to keep despite the bankruptcy process.
Arizona law provides that you must apply its state bankruptcy exemptions, as opposed to those at the federal level. If you recently moved, you may be able to use the exemptions list that applied in the previous jurisdiction to gain an advantage in your case. Some of the most common exemptions that are used to protect assets in an Arizona Chapter 7 case include:
- Up to $150,000 of the equity in your home or $300,000 for married couples;
- A maximum of $300 in an account;
- The value of $6,000 in home furnishings and personal belongings; and,
- Up to $6,000 of equity in a vehicle.
Tips on Rebuilding Credit Post-Bankruptcy
Another important fact about bankruptcy laws is that they do impact your credit score. It will drop when you file your petition. Plus, a Chapter 7 case will remain on your credit history for 10 years. Whenever you are subject to a credit check, the case will appear on your credit report. Still, many filers have already sustained a huge hit to their credit score by not being able to pay. Plus, 10 years might be better for individuals who would need decades to satisfy debt to creditors.
There are ways to rebuild credit when the time comes, and some tips include:
- Get a secure credit card where you deposit funds with the bank.
- Always pay utilities and other bills in full and on time.
- Make sure all bills are reported to credit bureaus to support credit repair.
- Use the tools you learned in the credit counseling sessions to avoid getting into debt trouble.
Consult with an Arizona Bankruptcy Attorney About Your Case
You can see that the process for Chapter 7 can be complicated, especially when protecting your retirement savings. Knowledgeable representation is essential, so please contact DebtBusters at (866) 223-4395 or via our website. We can schedule a free consultation at our offices in Scottsdale, AZ.
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