By Cara O'Neill
Assets such as Social security benefits, 401k accounts, and most retirement and pension accounts are protected under the Employee Retirement Income Security Act, also known as “ERISA,” and cannot be touched by creditors. These same assets are also protected in bankruptcy as well, which means that regardless of whether you file bankruptcy, your protected retirement accounts are safe.
Not all assets are protected, however. When a creditor files a lawsuit and obtains a judgment against you, the creditor gains powerful tools to collect the debt. First, you may be required to attend a debtor’s examination where you must disclose information about assets that are not protected, such as bank accounts, your property, and your employer, if you are still employed. The creditor can then use this information to drain your bank account, sell your property and garnish your wages.
Assets in Bankruptcy
The irony is that when you are retired, the assets that are vulnerable to attack by creditors are the same assets that may be sold in bankruptcy. This doesn’t mean that you lose all of your property if you file, however. You can protect a certain dollar amount of property by declaring the property “exempt” from the bankruptcy estate. Any property exceeding the amount you are allowed to exempt will be sold and distributed to your creditors.
Do the Math
If all of your property is exempt and you want the collection efforts to stop, bankruptcy is a good option that will eliminate your debt without having to deplete your retirement funds. If you own more property than you can exempt in bankruptcy, filing bankruptcy will still make sense if the amount of debt relief you receive will exceed the dollar value of the property the trustee sells to pay your creditors. Keep in mind, however, that if your main assets consist of your Social Security benefits or a protected pension, your creditors have no recourse against you. In that case, the relief you seek may be as simple as not paying your credit card payments – and possibly changing your phone number.
Superior Court of California, County of Orange: Collecting the Judgment – Plaintiff
Sacramento County Public Law Library: Collecting and Resisting Judgments
United States Department of Labor: Frequently Asked Questions about Pension Plans and ERISA