One of the most important messages that any bankruptcy attorney can convey to people in financial trouble is this: We discourage any attempts to tap into your retirement funds in order to resolve your debt situation.
First, Realize That Cashing in or “Borrowing” From Retirement Funds Is the Wrong Approach to Debt Relief
Countless clients of Debt Relief Legal Group who have tried to solve their debt problems by “borrowing” from their pension, IRA, 401(k) or life insurance have ended up filing bankruptcy anyway. Meanwhile, the money that they took out of these sheltered accounts, which was intended for use in old age, is gone.
Because you did not pay taxes on retirement funds when you earned the money, you will be required to consider whatever you take out as income for the year you cash it in. In addition, there will be extra taxes and penalties to pay when you cash in or borrow from retirement accounts. Worst of all, the hole left in retirement savings that are tapped into prematurely nearly always goes unreplaced. The missing funds are no longer there to continue earning compound interest. The result is a much larger gap in available retirement funds when the time comes to tap into these assets — with debt still unresolved in most cases.
Retirement Accounts Are Exempt In Bankruptcy
The answer to the question of, “Will I lose my pension, IRA or 401(k)?” is “Only if you raid those funds.” Retirement accounts are exempt in a bankruptcy filing. Keeping those funds intact and healthy is one of the best ways to protect your assets and prepare for a much stronger financial future, regardless of bankruptcy. As you live within your budget and reestablish credit after a bankruptcy, your retirement funds will continue to work for you, ready to provide for some of your financial needs later in life, undisturbed by taxation until they are withdrawn. Your retirement funds are protected from creditors and exempt in bankruptcy as long as you leave them undisturbed.
Retirement Savings and Bankruptcy
For more information on the bankruptcy process or to speak with one of our bankruptcy attorneys in Tampa about your rights, contact the Debt Relief Legal Group to schedule a free initial consultation. Call 1-800.DEBT.RELIEF toll free to make an appointment with a bankruptcy lawyer at our Tampa office or any of our Florida office locations.