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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 after bankruptcy might be even easier than before.

Written by Kristin Turner, Harvard Law Grad.  
Updated July 30, 2020

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 to have, the truth is that bankruptcy likely won't have any effect on your retirement savings.

The bankruptcy exemptions protect will likely protect all of your retirement savings. The key here, though, is to remember to list the savings as exempt in order to ensure that they remain protected. Once you protect your savings, you will likely be able to continue along your retirement plan in better shape than before!

How Bankruptcy Affects Your Retirement Savings

Exemptions were put in place by the federal government to protect those filing for bankruptcy. Each state has slightly varying exemption laws, and a few even let you choose between their laws or the federal laws.

In the case of retirement savings, however, a bankruptcy filer 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. Meaning that you can't simply have a bank account labeled "Retirement"; they must be in an IRA, pension, or something similar.

401(k) Accounts

401(k) are the most commonly known retirement accounts. Your 401(k) accounts are 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) account, your savings should be completely safe during the course of a bankruptcy.


An individual retirement account - also known as an IRA - is an alternative to a 401(k). IRAs allow you to put aside money from your earnings while also growing a substantial amount of interest on the savings. They're relatively safe, protected up to a very high amount in bankruptcy, and make saving up for retirement after 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 will have to pay taxes when you withdraw the money. Before you can even withdraw the money, the full tax owed will be removed from the account. Because of this, traditional IRAs typically have a few more rules in place to ensure that the tax payments are handled appropriately.

Roth IRA. A Roth IRA uses post-tax earnings. This means that all of the money you invest in them has already been taxed, and is, therefore, yours 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, and generally don't have any withdrawal limitations put in place.

Traditional and Roth IRA's are each protected up to $1,283,025. Every couple of years this amount increases. This means that if your retirement savings are in an IRA, you will more than likely be able to keep the vast majority of your savings.


Pensions are typically safe. Though, they have to meet certain requirements to be exempted. Your pension is fully exempt if it’s a 401, 403, or 408 plan, if it’s maintained by a tax exempt organization, and if 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 identifiable from the rest of your finances.

An easy solution is to have your Social Security payments deposited into their own bank account or even sent via check. Anything that keeps them separate from the rest of your income should keep these earnings safe.

Other Ways To Save For Retirement After Bankruptcy

Regardless of where you are in the lifespan of 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 your wages being garnished, monthly 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 more ahead you will be in the long run, and the more enjoyable your retirement will be.

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 and easy way to save for retirement after bankruptcy. It has the potential to grow your savings much faster than traditional retirement methods.

However, investing isn't the safest way to save for retirement after bankruptcy. It involves a certain measure of risk, and should therefore be handled extremely 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 investing decisions for you. Just keep in mind before using one of these that the service you are using is reputable.

Increasing Your Income

It's easier said than done, but increasing your income is a sure way to improve the growth of your savings for retirement after bankruptcy. Asking for a raise, shifting to another position, or working with another company in your field can all be great ways to quickly increase your yearly earnings. You could also consider going to school and getting a degree in a field that would increase your annual income.

Aside from career-related income, you could consider finding lucrative hobbies or pastimes. If you have any skills, passions, or trades in your tool belt, consider using it 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.

Retirement Is Still Possible After Bankruptcy

Saving for retirement after bankruptcy may seem like a stressful - 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 account. Even saving a little bit at time will go much farther 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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