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How does Chapter 13 affect South Carolina retirement investors?

Earning, saving and investing are important parts of planning a secure future. Without warning, a medical emergency, job loss or family crisis can wipe out a savings or hinder the ability to earn. When this happens, it is understandable when someone in South Carolina fears for the protection of his or her investments, especially if it becomes prudent to file for Chapter 13 bankruptcy.

Chapter 13 bankruptcy is sometimes called the wage-earner's bankruptcy because those who qualify typically have a steady income; however, the income does not stretch far enough to cover all their debt. By modifying the debt with a restructured payment plan, wage earners can work to clear unsecured debt within three to five years. The question is whether a bankruptcy affects one's 401(k), pensions or other investments.

Fortunately, the Employee Retirement Income Security Act protects a bankruptcy filer's retirement assets from creditors. The IRS may be able to levy a 401(k) if the investor owes back taxes, but only current or future disbursals from the account. Some filers choose to cash out portions of their 401(k)s to clear their tax debt rather than risk paying interest on IRS levies of future disbursals.

IRAs are generally protected unless the investor makes withdrawals, but each state has bankruptcy laws that could affect that protection. However, those in South Carolina who have money saved in self-employed plans can rest easy as long as they don't cash them out. The fate of a pension during bankruptcy depends on the exemption status and state laws. These concerns can be brought to an attorney who is experienced in Chapter 13 bankruptcy.

Source:, "Can Creditors Seize My Investments During Bankruptcy?", Sarah Szczypinski, July 19, 2017

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