Retirement Annuities & Bankruptcy Laws

By Heather Frances J.D.

Annuities can provide a source of consistent income throughout your retirement years, but they also can be attractive to creditors as a source to repay your debts. If you file for bankruptcy, you may be able to keep your annuity’s cash value and monthly payments, depending on your state’s laws and the type of bankruptcy you file. Under many circumstances, you can keep all or part of your annuity payments if you declare bankruptcy, particularly if you rely on the them to support yourself and your family.

Annuities can provide a source of consistent income throughout your retirement years, but they also can be attractive to creditors as a source to repay your debts. If you file for bankruptcy, you may be able to keep your annuity’s cash value and monthly payments, depending on your state’s laws and the type of bankruptcy you file. Under many circumstances, you can keep all or part of your annuity payments if you declare bankruptcy, particularly if you rely on the them to support yourself and your family.

Annuities

When you create an annuity, you place a monetary investment into someone else’s control in exchange for regular payments based on the initial investment. Annuities can be either deferred or immediate, depending on when you start collecting payments. Immediate annuities begin paying immediately, so they may be more beneficial to purchase as you approach retirement age. Deferred annuities grow over time without sending you payments, but they can be converted into immediate annuities when you're ready to receive payments. Both types of annuities are either fixed, meaning you receive a set amount, or variable, meaning you receive a payout amount based on market performance. Annuities also can be a combination of fixed and variable.

Get a free, confidential bankruptcy evaluation. Learn More

Bankruptcy

The role your annuity plays in your bankruptcy case depends, in part, on the type of bankruptcy you file. Chapter 7 bankruptcy requires a liquidation, or sale, of your nonexempt assets, though you typically get to keep your exempt assets. The list of exemptions available in your case depends on the state in which you file, because you're allowed to use your state's list, the federal government's list or both. Under Chapter 13 bankruptcy, you must create a repayment plan that provides for the repayment of some or all of your debts over a three- or five-year period. You must have a regular income to create a repayment plan, so you can include your retirement annuity as part of the income available to repay your debts.

Chapter 7 Exemptions

Both federal and state laws provide exemptions that may include the cash value of annuities and annuity payments, but your state’s laws determine whether you can use the federal list, state list or both. The federal exemption for annuities, found in 11 U.S.C. 522(d)(10)(E), can be difficult to use because it only exempts annuities payable by reason of illness, disability, death, age or length of service. Additionally, it only exempts the amount “reasonably necessary” to support you and your dependents. Typically, state exemptions are much clearer and more generous. For example, Florida exempts annuities without any limitations while Pennsylvania exempts payments up to $100 per month. States like Missouri and Mississippi, however, have similar exemptions to the federal statute, protecting only the amount “reasonably necessary” for support.

Special Annuity Protections

Some annuities fall into specific statutory categories that make them exempt. For example, 403(b) annuities, available to educational institutions and certain non-profit organizations, are exempted under the Employee Retirement Income Security Act of 1974 and under 11 U.S.C. 541(c)(2). Annuities that are part of employer-sponsored retirement plans also are exempt under ERISA, and many states have even broader protections for retirement annuities under state law. Kansas, for example, provides specific protections for certain types of annuities set up under state law.

Get a free, confidential bankruptcy evaluation. Learn More
How to File Bankruptcy While on SSI & Disability

References

Related articles

Guidelines for Filing Chapter 13 in Minnesota

Personal bankruptcy can help Minnesotans with heavy debt loads get some relief and a financial fresh start. Most aspects of Chapter 13 bankruptcy proceedings are governed by federal bankruptcy rules rather than Minnesota state law, but some areas of bankruptcy are state-specific, such as where you must file your petition and which exemptions apply to your case.

Ways to Exempt Your Refund in a Bankruptcy

If you're contemplating bankruptcy, you probably have a thousand thoughts running through your mind. At the top of that list are probably concerns about your taxes and what happens once you file. If you are expecting a tax refund, you may be especially worried. Before you decide whether or not bankruptcy is for you, it may help to understand how your filing could affect your refund and what steps you can take to protect it in your effort to create a fresh financial start.

Are Term Vested Employee Deferred Benefit Plans Exempt in Bankruptcy?

Bankruptcy can wipe the debt slate clean, but it can also result in loss of property to a court-appointed trustee. If your company rewards work and loyalty with a pension plan, you may be able to protect some or all of that asset from seizure in bankruptcy. It all depends on whether the plan meets certain qualifying guidelines; even if the plan does not qualify, it may be possible to exempt at least a portion of it under either federal or state exemptions.

Related articles

Do I Have to Give Up Things That I Own Outright When I File Bankruptcy?

Bankruptcy can be an intimidating process because of the uncertainty and complexity involved in turning over your debts ...

What Is the Wild Card Exemption When Filing Chapter 7 Bankruptcy?

The bankruptcy court isn't out to punish you for filing for Chapter 7 protection, and it won't strip you of everything ...

What Can You Keep in a Connecticut Bankruptcy?

Depending on the type of bankruptcy you file and the types of assets you have, you may be able to keep many of your ...

How to File Chapter 13 in New Hampshire

Chapter 13 bankruptcy can help you, as a debtor, prevent home foreclosure, make up missed car or mortgage payments, and ...

Browse by category