Seniors make up the largest-growing segment of bankruptcy filers in the country. Americans age 65 and older made up 7 percent of all bankruptcy filers in 2007, up from 2 percent a decade earlier, according to Bankrate
Making such a decisions to file for bankruptcy "poses some special issues for seniors who, unlike other filers, tend to have more equity in their homes and less of a chance of increasing their income so late in life," Bankrate noted, adding that seniors should do research before making such a decision.
Investment accounts enjoy some bankruptcy protection. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA) saw to that. Under the federal law, "IRA investors facing bankruptcy can shield their IRA assets from creditors," the financial services firm TIAA-CREF noted
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Employer-sponsored qualified retirement plans like 401(k)s and 403(b)s are also protected, under ERISA law. So are rollover IRAs beyond the $1 million limit, and SEP and SIMPLE IRAs, TIAA-CREF said. Education savings accounts are also protected on contributions made two years before a bankruptcy is filed.
However, according to Investopedia
, "any normal distribution that is taken from an IRA or qualified plan is subject to attachment from creditors, including required minimum distributions and hardship withdrawals. The law also does not extend protection to IRA monies outside of bankruptcy; creditors may attach IRA assets in many cases if bankruptcy is not declared (depending on state law)."
Seniors filing bankruptcy should know that while their retirement accounts are protected, those benefits that are paid out are not exempt, according to NOLO.com
"In a Chapter 7 bankruptcy, the bankruptcy court cannot take any retirement benefits that are necessary for your support, but it could take amounts over and above what you need for your support to repay your creditors. For the purposes of Chapter 13 bankruptcy, this kind of retirement income is included in your repayment plan and will help determine what portion of your unsecured debts you must repay," NOLO noted.
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