What assets are protected if an individual files bankruptcy?

I understand that if one files for bankruptcy, a traditional IRA is protected from creditors up to a $1 million dollar limit, and that SEP-IRAs are protected from creditors for unlimited amounts. Is this correct?

Also, what if one has a Traditional IRA worth $900,000 and then rolls over a SEP-IRA worth $1 million into the traditional IRA. In a bankruptcy proceeding, is the entire amount ($1.9 million) protected from creditors?

Finally, is a personal residence (house) protected from creditors in bankruptcy? Does it matter if the owner (a single person) is not living in the house during the bankruptcy proceeding but is in an assisted living facility?

Personal Finance, IRAs, Real Estate
Answers
Sort By:
Most Helpful
February 2018

Hi,

SEP-IRAs are protected while working for the employer. However, there is some controversy as to how the assets in a SEP may be viewed if employment is terminated. They could be viewed as IRA assets. IRA assets currently have protection up to $1,283,025, and are scheduled for adjustment due to inflation in April 2019. There could be additional protections in the state you reside.

There is a detail to consider here. These are the rules for bankruptcy. Ourtside of bankruptcy there is less protection. You would need to consult state law (strongly suggest an attorney) to see what your protections would be. Also, though not part of your question, all bets are off for inherited IRAs. 

As for the home owner question, this is a legal question. Much depends on the type of bankruptcy, your state, and the amount of equity. There is something called a "Homestead Exemption" that protects a portion of your equity. However, this is something you need to discuss with a qualified attorney.