Many retirees in Arkansas face debt challenges despite years of planning. Rising medical bills, fixed incomes, or the loss of a spouse’s income can make it difficult to stay afloat. Filing for bankruptcy during retirement is legal and, for some, an effective way to regain financial stability. However, understanding how your income, assets, and retirement savings are treated under Arkansas and federal law is essential before filing.

What Happens to Retirement Accounts in Bankruptcy?

Most retirement funds are protected during bankruptcy. Federal law shields qualified plans such as 401(k)s, 403(b)s, and pensions from creditors, meaning these accounts are typically off-limits. The Bankruptcy Abuse Prevention and Consumer Protection Act ensures that money set aside for retirement remains yours.

Traditional and Roth IRAs are also protected, though limits apply. As of 2024, about $1.5 million in IRA funds are exempt, with that amount adjusting for inflation. As long as your savings remain in a qualified retirement account, they cannot be used to pay debts. Once funds are withdrawn, however, that protection may disappear, so it is best to leave the money untouched until the bankruptcy process concludes.

Are Social Security Benefits Protected?

Yes. Federal law protects Social Security benefits from seizure or garnishment, even in bankruptcy. These funds cannot be used to repay creditors. However, retirees should be careful about how they manage these deposits. Mixing Social Security payments with other income can make it difficult to prove one’s exempt status. Keeping a separate account for Social Security benefits is often the simplest way to ensure they remain protected throughout the process.

What Is the Difference Between Chapter 7 and Chapter 13 for Retirees?

For retirees, both Chapter 7 and Chapter 13 bankruptcy offer relief, but they work differently: 

• Chapter 7 bankruptcy eliminates most unsecured debts, such as medical bills and credit card balances. Because many retirees live on limited income, they often qualify for Chapter 7’s “means test.” The process is relatively quick—usually completed within a few months—and exemptions generally protect your home, retirement savings, and basic possessions.
• Chapter 13 bankruptcy creates a repayment plan that lasts three to five years. This option can help retirees who have regular income from a pension or part-time job catch up on mortgage payments or prevent foreclosure. Instead of eliminating debts immediately, Chapter 13 allows you to pay down what you can afford under court supervision while keeping your property.

Will Bankruptcy Affect My Home or Other Property?

Arkansas provides strong protections for homeowners. The state’s homestead exemption shields most primary residences from creditors as long as the property meets certain size and value limits. This means you are likely to keep your home whether you file under Chapter 7 or Chapter 13. Other exemptions protect household items, vehicles, and retirement funds. These laws are designed to ensure you maintain stability and dignity during retirement while resolving unmanageable debt.

How Does Bankruptcy Affect Your Credit and Future Finances?

A bankruptcy filing remains on your credit report for several years, but its long-term effect may be less important for retirees. Most people in retirement are not seeking large loans or new credit lines, so the impact is often minimal. The immediate benefits—stopping collection calls, lawsuits, and wage garnishments—usually outweigh any temporary credit concerns. After discharge, retirees can rebuild credit slowly and enjoy the peace of mind that comes with a manageable budget.

What Should You Consider Before Filing?

Before filing, evaluate your income sources, expenses, and assets. Gather documentation for Social Security, pensions, and retirement accounts so that exemptions are clearly identified. It is also important to confirm whether you meet Arkansas’s residency and property requirements for the available exemptions. Some retirees find that restructuring finances or negotiating with creditors can help, but when debt becomes overwhelming, bankruptcy can offer a structured, legal solution that protects what matters most.

A Fayetteville Bankruptcy Lawyer at Wilmoth Law Firm Helps Clients Explore Their Best Options During Retirement

Filing for bankruptcy during retirement may feel daunting, but it can provide the clean slate you need to enjoy your later years without financial stress. With the right guidance, you can protect your home, savings, and income while eliminating burdensome debt. A Fayetteville bankruptcy lawyer at Wilmoth Law Firm can help you understand your rights under Arkansas and federal law, explore your best options, and guide you toward lasting relief. For a free consultation, call today at 479-443-8080 or fill out our online form. Located in Fayetteville, Arkansas, we gladly serve clients in the surrounding areas.