Bankruptcy allows for the protection of retirement accounts in a bankruptcy case. There are two ways that bankruptcy allows for the protection of retirement accounts.
One is an exemption (or, technically, an exclusion from the bankruptcy estate) , which is a law that protects certain assets from the claims of creditors. Pensions are exempt. Retirement accounts that are ERISA qualified are protected from the claims of creditors and can be retained in a bankruptcy case. In order to be considered retirement accounts, the accounts must meet certain requirements. (It may also be problematic if a large amount of money is placed in such accounts shortly before the bankruptcy is filed or when a creditor problem already exists). Generally, retirement accounts established by governmental entities and most businesses will meet these requirements. Proper IRAs qualify for the exemption.
Annuities and cash value in life insurance policies are other financial assets that are often used for retirement purposes are also protected from creditors in a bankruptcy case (at least for those eligible for Florida exemptions).
During a bankruptcy case, a debtor may continue to make payments towards a 401K loan even though the payments benefit the debtor. Debtors may also continue with employer mandatory retirement contributions. The Debtor may also be able to continue with contributions to a 401K or other voluntary retirement programs under some circumstances.