Unfortunately, many people have already withdrawn money from their retirement accounts or taken out a 401k loan in an attempt to pay off their debt before meeting with a bankruptcy attorney. Oftentimes, the 401k loan or retirement distribution is not enough to pay off all the debts and with compounding high interest rates the unpaid debts begin to grow again. Even worse, the 401k loans must be paid back and if a distribution was taken then significant income tax consequences generally result unexpectedly. Please read below to understand how this may affect you and speak to a bankruptcy attorney to save your retirement.
Are You About to Withdraw Money from Your Retirement Account or Obtain a 401k Loan?
STOP and speak to us TODAY!!! The money you have saved in your retirement account is 100% exempt by law, which means that creditors cannot garnish or otherwise force you to turnover any funds that are held in a qualified retirement account. If you withdraw retirement funds to help pay your daily living expenses for a few months, then those funds will lose its protection and past due creditors can seek to garnish (take) those funds that you may now have in a bank account. Setting an appointment with us to evaluate your decision can possibly save you thousands of dollars in retirement benefits.
Example to Avoid
Our office met with a client who owed $40,000 in unsecured debt (credit card type debt). Prior to meeting with us, the client withdrew approximately $30,000 from his retirement account over the past 2 years to enable him to afford the monthly minimum payments on these credit cards. At the time of the appointment he had depleted his retirement, and since he could no longer continue to make the monthly minimum payments he now decided to speak to a bankruptcy attorney. Unfortunately, over the past 2 years the client lost his retirement savings, incurred significant tax penalties (approx. $3,000) for early withdrawal of his retirement, and he still owes the $40,000 in unsecured debt because the retirement withdrawals only paid interest and barely reduced the principal balance. If he had met with our office originally, he would have been advised to file the bankruptcy immediately before withdrawing retirement funds, which would have eliminated the unsecured debt completely, prevented any income tax penalties, and he would still have $30,000 in retirement savings at his disposal.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.