Most of your retirement accounts are fully protected in a bankruptcy case. Any ERISA-qualified retirement account is completely excluded from the bankruptcy estate. This means that there's no risk that the trustee could take the money in your retirement accounts to pay your creditors.
Written by Attorney Eva Bacevice.
Updated January 25, 2022
Most of your retirement accounts are fully protected in a bankruptcy case. Any retirement account that falls under the Employee Retirement Income Security Act (ERISA) is excluded from your bankruptcy estate.
Since it's excluded, the bankruptcy trustee can't take the money from your ERISA-qualified accounts to pay your creditors. This includes most retirement accounts such as 401(k)s, 403(b)s, and IRAs. Other types of retirement accounts can be exempted or protected up to $1,362,800 per person. Even though they're included, you still need to list them on your forms and indicated that they're protected on your Schedule C.
This is why it's almost never a good idea to use your retirement funds to try to pay off your debts. You'll risk paying penalties and fines when you could otherwise protect those funds for when you need them.