If your financial situation is stressful and filing for bankruptcy seems inevitable, you may be wondering what happens to some of your plans for the future. For example, what happens to your retirement savings account through your work? Will your relaxing retirement years be lost because you find yourself in financial trouble right now?
Many debtors consider avoiding bankruptcy in order to protect their retirement funds from being taken in a bankruptcy case. Or, sometimes, debtors consider withdrawing retirement funds to help them get out of a financial trouble spot. If this describes you, then continue reading about how bankruptcy impacts your retirement.
The good news is that in most cases, your 401k and other retirement accounts are protected in bankruptcy. Federal law protects accounts such as 401Ks, 403Bs, IRAs, profit-sharing plans, and other forms of retirement savings from creditors and the bankruptcy trustee.
Your retirement savings will not be in jeopardy if you file for either Chapter 7 or Chapter 13 bankruptcy. There are, however, some things that you will want to be sure you do NOT do with your retirement savings before filing for either form of bankruptcy.
Most financial experts will advise against cashing in your 401k or 403b to prolong the inevitable – bankruptcy. Many people facing a mountain of debt dip into their retirement funds to pay off credit card debt or medical bills that are piling up. Taking the money out of your 401k and putting it in another account (to pay off bills) is usually a mistake. Once you have done that, the retirement account loses its exempt status.
In addition, cashing out your retirement fund is also a bad idea because you will pay penalties for withdrawing. If bankruptcy is on the horizon anyway you will essentially be using exempt assets to pay debts that might be discharged in bankruptcy anyway. Do you really want to lose something that would be protected under federal law in a bankruptcy case?
If you have questions about what is exempt in your bankruptcy case, call our office. We can help you examine which assets will be protected and which will not. We can also talk to you about getting back on your feet after your case has been filed with the court. Isn’t that the ultimate goal anyway?
Call The Law Office of Barry R. Levine with questions and let us help you. Call us at 978-922-8440, or visit our website at https://levinelawoffice.com/.