Think Twice Before Paying Creditors With Your Retirement
401(k) exempt in bankruptcy
It’s a real shame to hear the old story of the well meaning guy or gal who taps into their retirement in an attempt to escape the quicksand known as credit card debt and then ultimately ends up filing for bankruptcy despite their good intentions. This poor soul has probably had better days when they learn that they could have escaped their impossible debts without forfeiting the retirement they worked so hard for. Consumer Alert: If you’re contemplating tapping into your 401(k) to pay down debt, be aware that most retirement plans are protected from your creditors. That’s right, as a matter of public policy, your creditors are not allowed to take your retirement from you in satisfaction of a debt. In fact, the much maligned “new” bankruptcy laws enacted in 2005 actually expanded protection for retirement accounts, meaning you can file for bankruptcy protection and come out on the other side with your retirement. Most 401(k), 401(b) plans and IRAs are exempt regardless of whether state or federal law is applicable to your situation. Be aware, however, that protection for Roth and traditional IRAs is capped at 1 million dollars per individual.
If you’re facing a mountain of debt and are contemplating cashing in your retirement, think twice. Speak to an attorney to discuss your options, you might be glad you did.
See Also:
Exemptions For Retirement Accounts
