Updated May 20, 2016
With few exceptions, your pension is safe when you file for bankruptcy. The current bankruptcy law contains broad protection for pensions and other retirement plans. The bankruptcy law identifies each type of plan by the Internal Revenue Code (IRC) section which qualifies it for tax treatment as a pension or other retirement plan. Your plan administrator should be able to provide you with documentation to tell you what section of the Internal Revenue Code your plan is qualified under.
Under the current bankruptcy law, certain retirement plans have been designated as “excluded” from the bankruptcy estate, which means you get to keep them. Because they are not part of the bankruptcy estate, these types of plans do not come under the control of the bankruptcy trustee so there is not, technically, a need to claim them as exempt. However, you still must disclose your interest in these accounts on your bankruptcy schedules and many attorneys choose to list them under your "exempt" property as well. These accounts include:
If a retirement plan is exempt under the exemption system you choose to use, you get to keep it. When you file for bankruptcy, you are required to choose whether you are claiming federal or state exemptions. While the particular set of exemptions you use will determine whether your plan is exempt, most plans will qualify for an exemption under both state and federal exemptions. (To learn more about how exemptions work, which exemptions you may use, and how to find the exemptions in your state, see the articles in our Bankruptcy Exemptions area.)
Many states provide their own exemptions for pensions and other retirement plans, including special protections for state employee retirement plans. You need to check the law in your state for those details. But even when you claim state exemptions, you can claim most pensions and other retirement plans as exempt under the federal bankruptcy law as well. This is still considered electing state exemptions. These exemptions include:
If you are electing federal exemptions or you do not qualify for state exemptions, the exemptions are even more expansive. In addition to claiming the plans identified above as exempt, you are entitled to claim an exemption for any right to receive payments under any stock bonus, pension, profit sharing, annuity or similar plan or contract on account of illness, disability, age, or length of service to the extent reasonably necessary for your support or the support of your dependants. Limitations may apply if you were employed by someone close to you, such as a relative, at the time the plan was created.
Plans that may not qualify for an exemption include: