Attorney at Debt Advisors Law Offices
Practice Areas: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Stop Foreclosure
Filing for bankruptcy is never a simple choice, especially when retirement security is on the line. For many people in Wisconsin, decades of savings in a 401(k), IRA, or pension represent more than just numbers; they represent peace of mind and stability for the years ahead. Understandably, one of the biggest worries during bankruptcy is whether those funds will remain protected.
This article explains how federal law and Wisconsin exemptions safeguard retirement accounts, pensions, and Social Security benefits in bankruptcy. It also highlights the strategies that can help you preserve retirement savings while navigating financial challenges.
For many individuals, retirement accounts represent decades of careful saving. The thought of losing that safety net during bankruptcy can be overwhelming. In fact, the Consumer Bankruptcy Project found that senior bankruptcies tripled between 1991 and 2018.
With people living longer and relying more heavily on retirement savings, understanding how bankruptcy law protects these accounts is essential.
Bankruptcy in the United States generally falls under Chapter 7 or Chapter 13 in Wisconsin. Each type treats assets differently, but retirement funds often receive special protection.
Chapter 7, sometimes called liquidation, involves selling non-exempt property to pay creditors. Chapter 13, also known as reorganization, allows debtors to keep assets while repaying debts over three to five years.
Retirement accounts, including 401(k)s, IRAs, and pensions, usually remain exempt in both chapters, though the exact protections depend on the type of account and whether state or federal exemptions are chosen.
Federal bankruptcy law provides significant safeguards for retirement funds. Employer-sponsored plans like 401(k)s, 403(b)s, and defined benefit pensions are fully protected under the Employee Retirement Income Security Act (ERISA). This means creditors generally cannot access these funds.
Traditional and Roth IRAs also enjoy protection, but with a cap. As of 2025, the exemption limit is approximately $1.36 million per person. This figure adjusts periodically for inflation. These protections ensure that even after bankruptcy, individuals retain the resources they need for retirement.
At this point, many individuals begin to wonder how federal protections work alongside Wisconsin law. A Wisconsin bankruptcy lawyer can help you evaluate whether state or federal exemptions offer the strongest protection for your retirement accounts, especially when pensions or non-ERISA plans are involved.
Social Security income is typically safe during bankruptcy proceedings. Federal law exempts these benefits from creditors, whether filing under Chapter 7 or Chapter 13.
However, complications can arise if Social Security funds are deposited into a mixed bank account with other income. Courts may find it difficult to separate exempt from non-exempt funds. To minimize risk, it is best to keep Social Security benefits in a separate account.
Wisconsin residents may choose between federal and state exemption systems. While federal exemptions cover most retirement accounts, Wisconsin law provides its own protections for pensions and retirement benefits.
In some cases, state exemptions may better safeguard a filer’s assets, particularly for pensions not fully covered by ERISA. Choosing the correct exemption system is a critical decision that should be made with professional guidance. For accurate state exemption details, refer to the U.S. Courts Bankruptcy Basics.
Certain steps can strengthen retirement security in bankruptcy. Avoid withdrawing funds from retirement accounts to pay off debts, as withdrawals may lose exemption protection and trigger penalties.
Do not transfer assets just before filing, as this may be treated as an attempt to hide funds. Instead, ensure savings remain in qualified accounts that federal or state law exempts. Keeping Social Security deposits separate also prevents confusion over exemptions.
Bankruptcy is often seen as the end of financial stability, but it can also serve as a reset. Protected retirement accounts remain intact and can form the foundation for rebuilding. Once the case concludes, focus on creating a new budget, restarting retirement contributions, and building an emergency fund.
Over time, consistent saving habits and cautious planning can restore retirement security.
|
Retirement Asset Type |
Federal Protection Status |
Notes/Exceptions |
| 401(k), 403(b), ERISA pensions | Fully exempt | Protected by ERISA |
| Traditional IRA | Exempt up to ~$1.36M | Cap adjusts for inflation |
| Roth IRA | Exempt up to ~$1.36M | Same cap as Traditional IRA |
| Social Security Benefits | Generally exempt | Risk if co-mingled |
| Non-ERISA pensions | Partial protection | Depends on plan type |
Yes. Most 401(k)s are fully protected, and IRAs are exempt up to $1.36 million under federal law.
No. Federal law protects these benefits, but mixing them with other funds may cause complications.
Withdrawals may lose protection, incur tax penalties, and reduce long-term security.
Yes. Wisconsin exemptions vary and may protect different assets than federal law allows.
No. Protected accounts remain intact, and with planning, retirement savings can be rebuilt.
Most ERISA pensions are protected, though non-ERISA pensions may face partial limits.
Bankruptcy does not mean losing your retirement savings. Federal and Wisconsin laws protect most retirement accounts, pensions, and Social Security benefits, allowing individuals to preserve financial security in later years. With careful planning, bankruptcy can serve as a pathway to stability and renewed confidence in retirement planning.
Debt Advisors Law Offices can help Wisconsin residents understand exemption options and protect what matters most. If you are weighing bankruptcy and want to secure your future, professional guidance is essential.
Learn about bankruptcy protections, types of bankruptcy, how to get started, what to expect, and who to trust. Filing bankruptcy is the ONLY way to completely eliminate debt. If bankruptcy is right for you, it offers powerful protections that cannot be achieved through alternative solutions such as hardship relief, loans, or debt settlement.
