You may think that because you have retirement accounts, you should use these to pay your debts before you declare bankruptcy in Michigan. At Phoenix Law, we often advise people on their alternatives to this course of action. 

In a Chapter 13 bankruptcy, your goal is to create and complete a debt restructuring plan that allows you to make monthly payments based on what you can actually afford. The bankruptcy trustee does not liquidate or deplete your assets in a Chapter 13 bankruptcy, and the money in your retirement accounts is not used as an income source when figuring what you can pay each month. So, you do not need to raid your accounts to pay back your debts. You can leave the money where it is and retire on time. 

According to The Motley Fool, a consumer finance education source, there are laws and exemptions protecting money in retirement accounts in a Chapter 7 bankruptcy. Even though cash and money in your other accounts must go to pay your debts, the funds in your ERISA-qualified retirement accounts are exempt. Those not protected by this federal law may still be largely exempt. Funds in retirement accounts not covered by the Employee Retirement Income Security Act are exempt up to the current limit of $1,362,800. This limit will change in April of 2022. 

Traditional and Roth IRAs have this same exemption, so as long as you leave it in place, you can keep over $1.3 million in an IRA for retirement. 

More information about Chapter 7 and Chapter 13 bankruptcy is available on our webpage.