Filing for Chapter 7 bankruptcy might be your best chance to free yourself from burdensome debt. However, you may fear that the liquidation process will deprive you of your retirement money. While this fear is understandable, the truth is that bankruptcy liquidation is not a threat to many retirement accounts.

The kinds of retirement accounts you have and what laws apply to them will tell you how they may fare if you enter Chapter 7 bankruptcy. The Motley Fool describes how bankruptcy could treat certain accounts.

Your retirement accounts

Thanks to the Employee Retirement Income Security Act, a 401(k) that you have set up with an employer should be safe from bankruptcy creditors. You may have to ask your employer or the administrator of your 401(k) if your account qualifies for ERISA protection. In addition to not covering all 401(k)s, ERISA also does not cover traditional and Roth IRAs.

Still, it is unlikely creditors can claim all of your IRA or a non-eligible 401(k). Federal law exempts a portion of non-ERISA eligible 401(k)s and IRAs from creditor claims to the amount of $1,362,800 until the year 2022 when the exemption amount changes. So you might still end up with a large portion of your accounts after bankruptcy.

Social Security income and benefits

You should have no reason to sweat when it comes to your Social Security income since creditors cannot lay claim to it. Still, you might make your Social Security money vulnerable if you place it in an account with other income. You would have to show your bankruptcy trustee which money in the account qualifies as Social Security income. Keeping Social Security money in a separate account may prevent complications.

Your annuity income

The situation is not as clear if you have an annuity income. It will depend on how New York bankruptcy law addresses annuities. It may help if you funded your annuity with an IRA or a 401(k). The exemption for these accounts may apply to your annuity as well. However, if you set up an annuity too close to your bankruptcy filing, it could look like you are trying to pack money away in an annuity to avoid creditors. Other factors may include when and how much your annuity pays you.