In most cases, your pension will be protected when you file for bankruptcy. This can be automatic, or you may be able to claim an exemption. But this will not always be the case. Whether or not bankruptcy will affect your pension depends on what section in the Internal Revenue Code (IRC) your type of retirement plan appears under. Read on to learn more, and to see if your retirement plan is the exception to the norm.

First of all, there are retirement plans that you do not even need to claim as an exemption in order to protect them in bankruptcy. These retirement plans are labeled as "excluded" from bankruptcy; the account will remain untouched. Even though you do not have to claim them as exemptions to save them, you still have to put down the interests from these accounts when you fill out your bankruptcy schedules. Your bankruptcy attorney may also want you to put this with any other exempt properties. Some of the retirement plans that are automatically excluded include:

• Educational Individual Retirement Accounts, listed under IRC 530(1)(b), but there may be limitations on this
• Pensions and retirement plans under Employee Retirement Income Security Act of 1974
• Government retirement plans listed under IRC 414(d)
• Deferred compensation plans that fall under IRC 567
• Tax deferred annuity plans found under IRC 403(b)

Then there are retirement plans that you can claim under the exemption system in your bankruptcy. You will have the option of claiming either federal or state exemptions, and sometimes, your choice would affect which plans can be exempt. You will need to get acquainted with your own state's laws to see if there are exemptions available for pensions or retirement plans, and which ones you can claim. If you are claiming other state exemptions, you may still be able to claim most retirement plans or pensions under federal bankruptcy statutes and still have this be treated as if you were claiming a state exemption. This type of exemption can include:

• Under IRC 401, qualified pension, profit sharing and stock bonus plans, which includes employee stock ownership plan
• Under IRC 403, qualified annuity plans
• Under IRC 408, Individual Retirement Accounts (IRA) with funds of up to $1,245,475.00
• Under IRC 408A, Roth IRAs valued at up to $1,245,475.00
• Under IRC 414, retirement plans for controlled groups (governments, proprietorships, partnerships, churches, for example)
• Under IRC 457, eligible deferred compensation plans
• Under IRC 501(a), retirement plans created and sustained by organizations that are tax-exempt

If you elect (choose) federal exemptions, or if you have no other choice because you are ineligible for a state exemption, then the good news is that federal exemptions are greater. You can claim all the above plans as exempt, and you can also claim an exemption to continue collecting income from any annuity, stock bonus, pension, profit sharing, or such plans or contracts that are for duration of service, illness, disability, or age—at least for a time. Such exemptions might be restricted if you were hired by a close friend or relative when the plan was originally set up.

Finally, this brings us to plans that do not qualify for exemptions, funds which a bankruptcy trustee might tap into. These plans include, but are not limited to:

• Employee Stock Purchase Plans (ESPP)
• Inappropriately funded plans
• Plans that are not recognized as a retirement plan under the tax code
• Sometimes, an IRA that you inherited from anyone other than a spouse
• Funds that have been rolled over/transferred into a new fund in a manner not complying with tax code

If you have any questions about your retirement plans and how your other funds for the future will be affected by bankruptcy, contact a bankruptcy lawyer today. You can find the legal expert you need for this process on our directory.