Bankruptcy affords protection for retirement plans. If you have a 401k, 403B, IRA or other pension plan, this asset should be exempt if you file bankruptcy. An IRA is exempt up to a $1,000.000.00 and other retirement plans are exempt in their entirety.
Recently some IRA accounts have been challenged by Chapter 7 Trustees as unqualified. This occurred recently in a case in Tennessee where the Trustee objected to the IRA's exemption because the brokerage firm that held the Ira on behalf of the Debtor violated the Internal Revenue Provisions governing the qualifications for IRAs. If the brokerage firm that holds the IRA provides that it can place a lien on the IRA for its costs, this could violate the qualification of the IRA.
Debtors who are in Chapter 13 may be able to use their funds in an IRA or 401k for various personal expenses without court approval. If a Debtor is in Chapter 13, the model plan in the Eastern District of Michigan provides that the Debtor is not allowed to borrow more than a $2,000.00 without authorization from the court. During the course of a Chapter 13 a Debtor may need to purchase a vehicle or need cash for a house repair that is excess of the $2,000.00 limit. If a client has an IRA or 401k they can use the funds in this account without obtaining court approval. Even if a client borrows from his 401k and repays a loan court approval should not be necessary. However, if you were to plan to borrow from your 401k, you should review other options with your attorney such as a plan modification.