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Can I File for Bankruptcy in NJ and Still Retire?

Retirement should have you looking towards your golden years with peace of mind, not constantly looking over your shoulder for creditors.

On Behalf of Veitengruber Law | Sep 23,2022

A recent study by personal finance site MagnifyMoney found that 46% of people in the US know they will retire in debt. Retiring with debt can be difficult financially, as it may be unrealistic to pay off your debts and keep up with regular expenses under a fixed income. And while continuing to work until you pay down your debt may be an option for some, others may be forced into retirement before they are ready. Regardless of your circumstances, entering into retirement with unmanageable debt will likely lead to significant financial issues. Getting rid of your debt through bankruptcy is one option to consider before retiring in debt.

Is bankruptcy the right choice for you before you retire? Here are some things to keep in mind.

1.   Retirement Accounts are (Mostly) Safe in Bankruptcy.

Congress has expanded the Employment Retirement Income Security Act of 1974 (ERISA) to include almost all retirement accounts and pensions. This means that creditors cannot go after your retirement funds to collect on debts. The following accounts have unlimited exemption amounts:

-         401(k)

-         403(b)

-         Keoghs

-         Profit sharing plan

-         Money purchase plan

-         Defined benefit plan

There are, however, some limits to how much you can protect in your IRA or Roth IRA. Under federal bankruptcy exemptions, you can exempt up to $1,283,025.00 from creditors. If you have savings in excess of the maximum, it could go towards paying off your debt.

2.   You Can Still Contribute.

If you file for the debt-repayment plan under Chapter 13 bankruptcy, you can continue making payments to your retirement savings. As long as you made regular payments before your bankruptcy case, your continued contributions will not count against your disposable income. This will allow you to keep saving while getting out of debt faster.

3.   Delaying Bankruptcy Can Make it Worse.

Waiting until after retirement to file for bankruptcy can lead to a less favorable outcome for you. Once you begin withdrawing from your retirement accounts, those accounts become part of your monthly income. As part of your income, these accounts can impact the repayment terms you receive under Chapter 13, making your monthly payments higher. Additionally, you could lose access to Chapter 13 bankruptcy altogether if your income drops too low. Chapter 13 is often the best way to keep your assets (like your home) while paying down debts. If your income drops too low in retirement, it could limit your legal options to protect your assets.

4.   Get Rid of Old Debt for a Fresh Future.

Your old debts can haunt you. Back taxes and overdue student loan debt can hinder your ability to get future tax refunds or Social Security. This can majorly impact your financial bottom line when you are on a fixed income. Getting rid of the old debt you have been dragging around can allow you to enter retirement unburdened. You should be looking towards your golden years with peace of mind, not constantly looking over your shoulder for creditors.

If you are close to retirement and considering your options to get rid of debt, Veitengruber Law can help. We are an experienced bankruptcy and debt management firm in NJ. We offer free consultations to evaluate how bankruptcy might help your financial situation.


Wall Township

1720 Highway 34 Suite 10 Wall Township, NJ 07727

Phone: (732) 894-4909

Fax: (732) 695-3917

Bordentown Office

33 Third Street 2nd Floor Suite 3 Bordentown, NJ 08505

Phone: (609) 542-2339

Metuchen Office

(By Appointment Only)

247 Main Street Metuchen, NJ 08840

Phone: (908) 386-4767