Bankruptcy and Retirement Savings: How Bankruptcy Can Affect Your Retirement Accounts

Bankruptcy and Retirement Savings: How Bankruptcy Can Affect Your Retirement Accounts

Retirement is something most people look forward to and work their whole lives building. Many people become reasonably concerned about their retirement accounts when their employer files for bankruptcy. Finding out how bankruptcy and employer laws protect retirees may provide you with some reassurance. You can also talk to a Chattanooga bankruptcy attorney about your legal options.

What if My Employer Files for Bankruptcy?

You might be wondering what will happen if your employer files for bankruptcy. The effects of employer bankruptcy can be widespread because your employer will be trying to come up with the money to supply the liquidation that often occurs in bankruptcy. Many people wonder if this will impact their retirement accounts through their employer.

When an employer files for Chapter 7 bankruptcy, all business financial assets are liquidated to fund the debts owed. If this is not enough, this type of bankruptcy will also sell remaining financial assets to pay unsecured claims. In some cases, this requires the employer to sell retiree health plans. However, employers are usually still able to pay retirees their pension benefits.

Filing for Chapter 11 bankruptcy as an employer means the business will be restructured to keep the business from shutting down. A bankruptcy court must approve what financial assets are sold from the business to creditors. Laws under the Bankruptcy Code protect employees from losing retiree health insurance. Retirement benefits do not usually stop under Chapter 11 bankruptcy.

In some cases, Chapter 7 bankruptcy will completely terminate any business retirement plans. However, laws do protect employee retirement plans under bankruptcy when these plans are kept separate from employer assets. This can also be the case when retirement plans are placed in a trust or insurance.

Other Ways Bankruptcy Affects Retirement Accounts

In most cases, ERISA retirement laws protect employee retirement assets from situations when an employer files for bankruptcy. ERISA stands for the Employee Retirement Income Security Act and is designed to regulate retirement plans for employees.

If your employer files for bankruptcy, you might be able to find out the effect of this on your retirement plans by contacting your plan administrator. ERISA requires employers to keep retirement plans for employees separate from employer assets. In other words, creditors should not have access to your retirement plans.

Certain plans, like pension plans, are insured by the government and protected by the Pension Benefit Guaranty Corporation. However, 401(k) plans are not usually covered by this organization. Consider contacting your employer to find out what will happen to your retirement benefits after bankruptcy.

Those with privately funded retirement accounts do not need to worry because they have built their retirement separately from their employer. Common examples include savings accounts, CDs, and individual retirement accounts.

Call Tom Bible Law for Legal Aid

Consider consulting with a bankruptcy lawyer if you have concerns about your retirement accounts after bankruptcy. You can call us at Tom Bible Law by dialing (423) 424-3116 for a consultation today about your finances. Our experienced team of Tennessee bankruptcy lawyers is ready to help you figure out the complexities of bankruptcy-related financial challenges. We are located throughout the Tennessee cities of Chattanooga and Tullahoma.

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