Creditors are Getting More Retirement Funds
The government encourages everyone to save for retirement. Many laws, such as the favorable tax treatment afforded to IRAs and pension plans implement this important government policy. Creditors have limited rights to levy on retirement funds to satisfy debts.
For example, ERISA qualified retirement plans, such as an employers 401k plan cannot be levied upon by creditors. Patterson v. Schumate, (1992) 504 U.S. 753, 112 S. 2242, 119 L.Ed.2d 940 California Code of Civil Procedure § 704.115 provides an exemption from levy (except child, family and spousal support) for “private retirement plans” to the extent necessary to provide for the support of the judgment debtor and his or her spouse and dependents. Matured life insurance benefits have a similar exemption. Code of Civil Procedure § 704.100. Neither the California legislature nor the Bankruptcy Code have defined how much is “reasonably necessary” for a debtor’s support. In the case of In re Flygstad, 56 B.R. 884, 889-90 (Bky N.D. Iowa 1986) eleven factors were set forth which many courts consider:
1. Debtor’s present and anticipated living expenses;
2. Debtor’s present and anticipated income from all sources;
3. The age of the debtor and his or her dependents;
4. The health of the debtor and his or her dependents;
5. The debtor’s ability to work and earn a living;
6. The debtor’s skills, training and education;
7. The debtor’s other assets (includes exempt assets);
8. The liquidity of the other assets;
9. The debtor’s ability to save for retirement;
10. The special needs of the debtor and his or her dependents; and
11. The debtor’s other financial obligations.
Some courts try to determine that if the retirement funds are used to satisfy creditors’ judgments, will the debtor be able to rebuild an adequate retirement fund. See In re Dalaimo, 88 B.R. 268 (Bky S.D. Cal. 1988). In the end, what constitutes reasonable and necessary is within a court’s discretion on a case by case basis. In re Switzer 146 B.R. 1, 5 (Bky S.D. Cal. 1992).
