401(k) and Bankruptcy

When you file for bankruptcy, there’s a high possibility you will be required to relinquish some assets. You may have to liquidate assets to pay secured debts or follow a strict payment plan where if you fail to pay creditors will come back for your property. With this in mind, you may be wondering how bankruptcy affects certain assets such as your 401(k) account.

Thankfully, 401(k) and most non-taxable retirement accounts are exempt from bankruptcy in the United States. That means you don’t have to worry about creditors seizing your 401(k) funds without your knowledge. However, that doesn’t mean you’re off the hook. Making certain decisions with your 401(k) during or before bankruptcy could drastically affect your retirement funds. Funds that could have stayed in your pocket if you knew beforehand what to do. Because of this, it’s important you don’t make any major decisions regarding your 401(k) until you get in contact with an experienced bankruptcy attorney. 

Ohio Bankruptcy Exemptions Attorney in Cincinnati

Handling debt is always a sticky situation, especially when you lack the means to fulfill your payment obligation. Filing for bankruptcy can grant you a new start and allow you to still save your retirement accounts such as your 401(k). However, it’s important you understand the process thoroughly before you make any serious decisions. For skilled counsel with extensive experience in bankruptcy law we suggest you contact Steiden Law Offices. 

Eric Steiden has represented clients struggling with both Chapter 7 and 13 bankruptcy with over 15,000 successful case filings. Him and his team have the right legal knowledge and courtroom know-how to effectively represent you throughout every step of the bankruptcy process. Get in contact with him now at to set up your first consultation. 

Eric Steiden and his team proudly represents individuals throughout Kenton County, Boone County, Campbell County, Gallatin County, Grant County, Pendleton County, Bracken County, Robertson County, Mason County,  in Kentucky, along with those who reside in Hamilton County, Butler County, Clermont County, Warren County, Clinton County, Montgomery County, Greene County, Preble County, Darke County, Highlands County, Miami County, Shelby County, Champaign County, Clark County, Brown County, Adams County, Lawrence County, and Scioto County, Ohio.

Overview of 401K and Bankruptcy in OH


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Do You Lose Your 401k in Bankruptcy?

It can be nerve wracking to file for bankruptcy when you know some of your assets are bound to be liquidated. However, when it comes to your retirement account such as your 401(k) the government has implemented legislation to protect your funds. In 2005, the Consumer Protection Act (BAPCPA) broadened protection afforded to retirement plans. That means creditors cannot have access to funds in your 401(k) as long as it’s secured in the account.

Other retirement accounts that are exempt from bankruptcy include:

  • Roth IRAs;
  • 457s;
  • 403(b)s;
  • Teacher Retirement Plans; and
  • Pension Plans

It’s important to note that certain limitations do exist depending on how a person is filing for bankruptcy. In 2016, new legislation passed which set a new limit for exemption from creditors for IRAs and Roth IRA’s which is $1,283,025. Any excess amount can be taken by a bankruptcy court if creditors seek fit.

The Ohio Revised Code § 2329.66(A)(10) states that Simplified Employee Pensions (SEPs) and SIMPLE IRAs are not exempt from bankruptcy, despite being a retirement account. In addition, the state of Kentucky’s Revised Statute § 427.150(2)(f) provides that an IRA or Roth IRA exemption does not apply to any amounts contributed to an IRA if the contribution occurred within 120 days before the debtor filed for bankruptcy.


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What NOT to Do with Your 401k During Bankruptcy

It’s a general rule of thumb that you don’t touch your retirement account until you’ve reached a certain age. However, when you’re struggling to stay afloat financially and bankruptcy is your only option, then draining your 401(k) may sound like a good plan. Although it’s an alluring idea, it’s incredibly important you don’t make any rash decisions regarding your 401(k) before speaking to an experienced bankruptcy attorney. Creditors may be able to access your 401(k) funds if you make the drastic decision to access your retirement account.

Some of the most common mistakes people make regarding their 401(k) during bankruptcy include the following:

  • Draining Your 401K Account – Once you’ve withdrawn money from your 401(k), it becomes taxable cold hard cash. After it’s left the account it loses its exemption status and creditors will be keen to secure the funds. It might be tempting to do so, but you will regret it in the long run when have marginally less for retirement.
  • Don’t Pay Your Debt with Your 401k – It’s common for people to cash their 401k in so they can get their finances and debt on track. This is almost always going to result in disaster. Not only are you paying your penalties for withdrawing your 401(k) early, but you are using exempt assets to pay off your debt that could be discharged in bankruptcy. Essentially, it could be a waste of your 401(k). You will likely be in a better financial position if you keep your 401(k) secured and then file for bankruptcy.
  • Don’t Move or Put Money in Your 401k – A lot of people will attempt to convert their nonexempt assets, such as your savings account, into exempt assets by making a large contribution to their 401(k) before declaring bankruptcy. It’s highly recommended you don’t’ do this unless you’ve spoken to a bankruptcy lawyer first. The property could lose its exempt status if the trustee believes you transferred property in order to delay, defraud, hinder or shortchange the creditor. If the court suspects you’re committing fraud, then they will refuse to grant you the bankruptcy discharge entirely. 

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Additional Resources

ERISA | United States Department of Labor — On this section of the Department of Labor website, you can learn more about the federal ERISA law. Find information about fiduciary responsibilities, participant rights, and types of retirement plans. Learn more about retirement savings, plan information, and compliance assistance.

United States Bankruptcy Court – Southern Ohio – The primary website for Cincinnati and surrounding area residents. It provides information on judges, locations, phone numbers, FAQ s, means testing, filing and seminars.

U.S. Bankruptcy Court, Southern District of Ohio
Cincinnati Divisional Office
221 E. Fourth Street
Cincinnati, OH
(513) 684-2572


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40(k) Bankruptcy Lawyer in Cincinnati, OH

Are you thinking about filing Chapter 7 or Chapter 13 bankruptcy and have concerns about protecting your 401(k) or other retirement account? If so, then we highly suggest you get in contact with the experienced legal team at Steiden Law Offices. Eric Steiden and his staff will work tirelessly to protect as many assets possible during your bankruptcy. With his years of experience and extensive financial knowledge, Attorney Steiden can effectively represent you and your interests.

Our Cincinnati bankruptcy lawyers accept clients throughout the greater Southern Ohio and Northern Kentucky area including Norwood, Forest Park, Covington, Erlanger, Florence and many others. To get in touch with Steiden Law Offices, call us at to set up your first consultation free.


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Convienient Office Locations
Cincinnati, OH
830 Main St #401 Cincinnati, OH 45202
Springdale
260 Northland Blvd #129 Cincinnati, OH 45246
Covington, KY
411 Madison Avenue Covington, KY 41011
Florence, KY
6900 Houston Rd #21 Florence, KY 41042
Maineville, OH
2263 W US 22 and 3 Maineville, OH 45039
Beechmont
4030 Mt Carmel Tobasco Rd #129 Cincinnati, OH 45255
West Chester, OH
8050 Becket Center Dr #131 West Chester, OH 45069