Pensions and retirement accounts are usually fully exempt in Chapter 7 bankruptcy cases.  The following is a brief summary of exemptions that apply if you are qualified to file for bankruptcy protection in California.

401(k) Accounts

The value of a 401(k) account cannot be claimed by creditors or made part of the bankruptcy estate.

Individual Retirement Accounts (IRA)

In California, funds held in IRAs and other qualified retirement plans (which are legitimately created for retirement purposes) are exempt.

Social Security Retirement Benefits

Social Security benefits are protected to some degree in every state.  In California, under System 1, Social Security benefits deposited directly into a bank account are exempt in the following amounts: $2,875 for a single payee and $4,300 for a couple (two payees). Under System 2, the debtor’s “right to receive” Social Security benefits is protected, without limitation.

Note: The federal government, collecting federal debts, can garnish 15% of a recipient’s Social Security benefits for collection of a debt.  Federal debts include income taxes, guaranteed student loans and benefit overpayments.  Social Security benefits can’t be garnished at all if the benefit amount is less than $750 a month.

State Pensions

Public employee pensions are exempt under the California Government Code.  Public employees include state and county employees, police officers and fire fighters.

Federal Pensions

If you were an employee of the United States government, or a veteran of the U.S. armed forces, your retirement benefits are exempt under federal law.  This group includes civil service employees, veterans and railroad workers.

Union and Private Pensions

In most cases, an employee’s right to receive a pension through a union or private employer is fully protected. Since individual pension plans differ, it is best to consult an attorney as well as the pension plan administrator.

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