If you are drowning in debt, one option that you may explore is filing for bankruptcy. However, if you have accumulated a nest egg in your savings accounts, you may worry that filing for bankruptcy will force you to liquidate everything in order to obtain debt relief. Fortunately, this is not the case in many situations. Here are a few things you need to know about the impact of filing for bankruptcy on your savings accounts
Practically Every Type of Retirement Account is Exempt
If your savings consists of retirement accounts, such as a 401(k) or individual retirement account (IRA), know that your nest egg will be safe during bankruptcy. In a chapter 7 bankruptcy, the court will not use your accounts to repay a portion of your debts, and in a chapter 13 case, the amount of your retirement savings will not be used to determine how much of your debts that you have to repay.
As of March 2018, you can exempt up to $1,283,025 per person in a retirement account.
You Can Use the Wild Care Exemption to Help Preserve Your Savings Account
Your nest egg may be in a regular savings account. Whether or not the bankruptcy trustee will seize your savings depends on the balance in your savings account, your state's laws, and the type of bankruptcy that you file for,
In a chapter 7 bankruptcy, you liquidate many of your assets in order to pay off a portion of your debts. This would include your savings account. However, many states permit you to keep a small amount of cash in a savings account. If your state has a wildcard exemption, you can use this to rule to exempt an additional portion of your savings account. A wildcard exemption can be used on practically any type of property to protect it during bankruptcy.
With a chapter 13 bankruptcy, your bankruptcy trustee will use your assets (including your savings account) to calculate how much of your debt you have to repay. While you may technically get to keep your savings account, it will influence the amount of your debt repayment. You can also use the wildcard exemption in a chapter 13 bankruptcy to exempt some of your savings from the repayment calculations.
Your Bank May Try to Seize Your Savings If You Owe It Money
If you have your savings accounts at a bank that also have loans with, the bank may freeze your account and use it to offset the money that you owe. To prevent this from happening, open a new checking and savings account with a bank that you do not have any loans with.
Talk to a bankruptcy attorney for more information.