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How Does Bankruptcy Affect My Retirement?

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In a Nutshell

Your retirement savings usually aren’t affected by bankruptcy. After you file, saving for retirement might be even easier than before.

Written by Kristin Turner, Harvard Law Grad
Updated January 25, 2022

The word bankruptcy can conjure up feelings of stress, anxiety, and fear. Many individuals, especially those close to retirement, might be concerned about how filing for bankruptcy will impact their ability to retire. While this is a reasonable concern, the truth is that bankruptcy likely won't have any effect on your current retirement savings.

Bankruptcy exemptions will likely protect all of your retirement savings. The key is to remember to list your retirement accounts as exempt to ensure that they remain protected. Then you'll likely be able to continue saving for retirement and be in better shape than before!

How Bankruptcy Affects Your Retirement Savings

The federal government put exemptions in place to protect those filing for bankruptcy. Each state has slightly different exemption laws, and a few even let you choose between state or federal exemptions. In the case of retirement savings, bankruptcy filers can use the federal exemption regardless of whether their state allows it or not.

The federal bankruptcy law protects your retirement savings up to around $1 million dollars. The only requirement is that your retirement savings be a part of some retirement plan. This means they must be in a 401(k), IRA, pension, or something similar. You can't simply keep retirement funds in a bank savings account.

401(k) Accounts

401(k)s are the most commonly known retirement accounts. Your 401(k) account is completely covered under the Internal Revenue Code. This means that no matter how little or how much you have put away in a 401(k), the account should be completely safe during bankruptcy.

Individual Retirement Accounts (IRA)

An individual retirement account (IRA) is an alternative to a 401(k). IRAs allow you to set aside money from your earnings to grow interest. They're relatively safe, protected up to a very high amount in bankruptcy, and make saving up for retirement after you file bankruptcy much easier. They also offer a pretty decent amount of flexibility and come in two varieties.

Traditional IRA

Traditional IRAs use your pre-tax earnings. This means that the money you invest in them hasn't been taxed yet. While this allows you to save up money faster (since you won't be losing money to taxes), you'll have to pay taxes when you withdraw the money. Before you withdraw money, the full tax you owe will be removed from the account. Because of this, traditional IRAs typically have more rules to ensure that tax payments are handled appropriately.

Roth IRA

A Roth IRA uses post-tax earnings. This means that all the money you invest in a Roth IRA has already been taxed. That means the money is yours in the same way that the money in your bank account is yours. When you withdraw your savings from a Roth IRA, you can withdraw the full amount, tax-free. These are more flexible accounts than traditional IRAs.

Traditional and Roth IRA's are each protected up to $1,362,800. Every three years, this amount increases. This means that if your retirement savings are in an IRA, you'll likely be able to keep all or most of your savings.


Pensions are typically safe. Though, they have to meet certain requirements to be protected by an exemption. Your pension is fully exempt if:

  • It’s a 401, 403, or 408 plan,

  • It’s maintained by a tax-exempt organization, and

  • It falls under the Employment Retirement Income Security Act of 1974 (ERISA-qualified).

Social Security

If you're relying on Social Security income rather than a retirement savings account, you should still be completely protected. Social Security payments are under federal protection. The only catch is that they must be kept separate from the rest of your money for the protection to apply. This is why it's a good idea to deposit these funds into a separate bank account or request they be sent by check. Anything that keeps them separate from the rest of your income should keep these earnings safe.

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Other Ways To Save for Retirement After Bankruptcy

Regardless of where you are in your working career, saving for retirement after bankruptcy is much the same as saving before. In fact, it might be even easier, depending on your situation.

After you file for bankruptcy and have all of your debts discharged, you won't have to worry about creditors garnishing your wages, making monthly debt payments, falling behind on debts, etc. You should have more free cash flow after you've filed, allowing you to save much more effectively.

While saving for retirement after bankruptcy might not be on your list of priorities when going through a bankruptcy, it should be. Saving for retirement is accomplished bit by bit. The sooner you start, the better off you'll be in the long run.

After your discharge, you can resume your saving just as before. You can also consider other ways to contribute to your retirement savings.


Investing can be a quick way to save for retirement after bankruptcy. When done well, it can grow your savings much faster than traditional retirement methods. That said, investing isn't the safest way to save for retirement after bankruptcy. It's riskier than other methods, so if you're considering investing, do it responsibly.

Hiring an investment advisor and playing it safe is the best route to go when you're dealing with retirement savings. There are also plenty of great services out there known as robo-advisors. These are programs and apps that automatically track your investments and make smart investment decisions for you. Do your research before you invest to make sure the service is reputable.

Increasing Your Income

It's easier said than done, but if you can figure out a way to increase your income, you'll be able to grow your retirement saying faster. Asking for a raise, shifting to another position, or working with another company in your field can all be great ways to increase your earnings. You could also consider going back to school and getting a degree in a field with higher earning potential.

You may also be able to make money outside your main job. If you have any skills, passions, or trades in your tool belt, consider using them to your advantage and starting a small business. You can work part-time and supplement your monthly income. Doing so will increase your free cash flow, making it easier to save for retirement after bankruptcy.

Let's Summarize...

Saving for retirement after bankruptcy may seem stressful or even impossible. But it might be even easier than trying to save for retirement before bankruptcy. Without the burden of debt, you'll have more money to put into a savings or retirement account. Even saving a little bit at a time will go much further once you’re debt-free!

Written By:

Kristin Turner, Harvard Law Grad


Kristin is a recipient of Harvard Law School’s Public Welfare Foundation A2J Tech Fellowship. At Harvard Law, she served as a member of the Harvard Defenders, the Women’s Law Association, and the Harvard Law Negotiation Review. She was the 2016 – 2017 president of the Harvard Bla... read more about Kristin Turner, Harvard Law Grad

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    Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

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