Is My 401K Safe If I File Bankruptcy?

The short answer is yes.  Retirement accounts are safe from creditors including 401K accounts if you find you need to file a chapter 7 or chapter 13 bankruptcy. The Ohio Revised Code says that any person who is a resident of Ohio can exempt from garnishment or lien to pay off a judgment the following: pension, benefit, retirement annuity, retirement allowance, or accumulated contributions. 

That goes for a person’s right to a participant account in any deferred compensation program offered by the Ohio public employees deferred compensation board, a government unit, or a municipal corporation too. Also, Ohio exemptions protect folks that are currently retired and are drawing from retirement accounts. 

There is a cautionary note: you can’t start dumping large sums of money in IRA accounts shortly before trying to file bankruptcy. If you do, your attorney will make you wait several months before filing your case. You can’t use retirement accounts to defraud your creditors. 

Whether you are slowly drowning in debt or you’re not quite ready for bankruptcy yet but you see it coming, please do not use your retirement to pay off unsecured creditors.  At the first signs of financial trouble, it pays in the long run to go see a bankruptcy attorney to find out what is protected and what isn’t. That way, if you do need to file, your retirement will still be safe for when you really need it. Let the bankruptcy take care of the unsecured creditors and hopefully enjoy your retirement.