The Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BAPCPA) simultaneously increased, in some cases substantially, the creditor protection available to retirement accounts for those who declare bankruptcy.
Before implementation of the Bankruptcy Act, the protection of retirement accounts from creditors during bankruptcy had been subject to multiple rules depending on the type of account and the applicable state. Employer retirement plans have received creditor protection due to the Employer Retirement Income Security Act of 1974 (ERISA), but only a limited number of retirement account types were actually subject to ERISA.
For non-ERISA-protected plans, protection has varied by state. The extent of relief for debtors with retirement accounts would depend on which bankruptcy protections applied for a particular debtor’s state. Protection varied from unlimited in some states to none in others, and professionals, much less retirement plan owners, often had difficulty keeping track of which states applied which protections (keep this in mind if you relocate from one state to another). BAPCPA has simplified retirement account creditor protection by eliminating much of the differentiation among types of plans and bankruptcy jurisdictions.