Can Bankruptcy affect my Pension?

What retirement plans are exempt:

States have the choice on whether to adopt the federal bankruptcy exemptions or create their own laws and lists of “exempt” property.  Property that is exempt will be kept outside of the bankruptcy estate and will not come under the control of the trustee.  Colorado has “opted” out of the federal bankruptcy exemptions in lieu of its own set of exemptions.  Colorado law lists exempt accounts in Colo. Rev. Statutes §13-54-102, §13-54-104, and §38-41-201.

With few exceptions, pensions and other retirement accounts are safe in a Colorado bankruptcy proceeding.  In determining whether an account qualifies as a retirement plan, the bankruptcy laws look to how the Internal Revenue Code qualifies the account for tax treatment.

1. Pensions
2. Deferred compensation plans
3. Health savings accounts
4. Plans that qualify under the federal “Employee Retirement Income Security Act of 1974”
5. Any pension plan as defined in 29 U.S.C. §1002
6. Any individual retirement account as defined in 26 U.S.C. §408
7. Any Roth retirement account as defined in 26 U.S.C. §408A
8. Any plan defined in 26 U.S.C. §401

Despite a pension being exempt from the bankruptcy estate, you must still be sure to list the pension on your bankruptcy schedule.

While the list of exempt retirement plans is quite broad, there are some plans that are not generally exempt:

1. Employee Stock Purchase Plans;
2. Plans that were improperly funded or created;
3. Plans that do not qualify as retirement plans under any identified section of the tax code.

Savings and Stocks:

Generally speaking, for funds to be considered a retirement account (and therefore exempt), the Internal Revenue Code must treat them as a retirement account.  For example, traditional savings accounts and stock portfolios are not treated as a retirement account by the Internal Revenue Code (unless held inside some sort of retirement vehicle).  Traditional savings accounts are considered similarly to a checking account and are not subject to the retirement plan exemptions.  Your stock/bond portfolio is treated as an investment asset and is not exempt under the retirement account exemptions (unless held in some sort of retirement vehicle).

Bankruptcy doesn’t have to be an emotional decision. It can be a practical business decision. If you have any questions about your bankruptcy case, please contact us online or call us at 303-990-5308.