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Are retirement accounts exempt from bankruptcy?

Compared to other forms of bankruptcy, Chapter 7 is generally faster and more effective in eliminating more types of debt. The tradeoff is that Chapter 7 involves liquidating many assets in order to pay off creditors. It can be intimidating for many people to consider getting rid of a big portion of their assets, even if they know that, in the end, bankruptcy can put them on a much healthier financial footing. This may be especially true for people who have retired or who are planning to retire soon.

Fortunately, under Arizona law and the U.S. Bankruptcy Code, there are a number of types of assets that are exempt from the liquidation process in bankruptcy. Some key exemptions are for a house, certain types of personal property and certain types of insurance proceeds, such as the proceeds from a life insurance policy. Arizona law also provides exemptions for some types of retirement accounts and pensions.

Some types of retirement programs for state workers, such as the Arizona State Retirement System and the Police Officers Pension system, have very strong protection from creditors. IRA accounts, a very popular form of retirement savings, are generally exempt from bankruptcy liquidation in Arizona. This means that creditors generally cannot dip into IRAs to satisfy debts.

This is not the case in every state. But even in Arizona, it's there are exceptions to the exemption rule. It's also important to note that some types of retirement accounts, such as 401(k) accounts, have even greater protection than an IRA.

Chapter 7 may be the quickest and most effective method of getting out of debt, but a Chapter 7 bankruptcy must be handled with care. Arizona attorneys with experience helping clients to file for bankruptcy protection under the U.S. Bankruptcy Code can help people to come up with a plan that ensures they get out of debt, while also making sure they have enough for retirement.

Source:, "Can Debt Collectors Go After My Retirement Savings In Court?" Dan Kadlec, June 18, 2015