Serving all of Tampa Bay
Hillsborough (813) 909-0022 | Pinellas/Pasco (727) 799-1701

Can A Bankruptcy Take My 401K?

The short answer is no, 401Ks are generally protected from instances of bankruptcy. You have certain laws to thank for that, and it helps to live in a state that supports these acts like Florida (among many others). But how is your retirement fund protected, are there any exceptions, and what can you do in the face of bankruptcy? Maggi Tax has everything you need to know.

The Employee Retirement Income Security Act

Also known as ERISA, this act ensures that your 401K, as well as many other types of retirement funds, are considered exempt. Should you ever need to file a bankruptcy, you are not obligated to include your 401K whether you proceed with a Chapter 7 or Chapter 13 bankruptcy. To be more specific, creditors looking to collect won’t be able to touch your retirement savings under Chapter 7, and it won’t even be seen as a viable asset under Chapter 13. But don’t get your hopes up too high just yet. Despite ERISA, there are certain exceptions to the rule that could cause you to lose your 401K regardless.

Exceptions to ERISA Protection

Under certain circumstances, your retirement account may still be accessed. Some of these reasons may feel out of your control, such as having to give up a percentage of your 401K to a spouse or dependent under a qualified domestic relations order which can arise from instances of divorce. Other uncommon stipulations include owing federal income tax or having unpaid fines or penalties due to federal crimes. But as long as you’re staying on top of your taxes and you’re not a criminal who’s facing charges, you likely have nothing to worry about.

How Do Bankruptcies Happen In the First Place?

Most of the time, improper or irresponsible handling of finances can be enough to file for bankruptcy. Imagine having too many bills or having a great deal of borrowed money to pay back. Those who are barely scraping by might be unfortunate enough to lose their job or face a large decrease in their income, making it impossible to keep up with minimum payments. Sometimes, so much as a hefty medical bill or an unfortunate accident resulting in costly repairs can be enough to tip the scale. This is why proper income planning is important, and sticking to it is even more crucial. With the right advisory, you could be paying your bills while keeping a healthy retirement fund.

Ways To Protect Your 401K

When people feel under pressure, they may be tempted to pull from their retirement fund early to put towards the money they owe. Doing so much as paying credit card debt with retirement funds can throw off your total earnings since 401Ks and other retirement accounts are designed to compound over time depending on the amount currently in your savings. This should only be considered as a last resort, if at all. The best thing you can do is to speak with a financial advisor for expert guidance in the right direction.

Need Financial Guidance? Contact Maggi Tax Today!

Planning for your retirement while sorting out your finances can be tricky, but Maggi Tax is here to help! Call (727) 799-1701 to schedule a complimentary consultation and we’ll get you started on a plan that’s best for your needs.


Palm Harbor

4114 Woodlands Pkwy,
Ste. 303B
Palm Harbor, FL 34685

(727) 799-1701


212 Crystal Grove Blvd
Lutz, FL 33548

(813) 909-0022

St. Petersburg

3663 Central Avenue
St. Petersburg, FL 33713

(727) 799-1701

Contact Us