With the state of today’s economy I am encountering a very common scenario with many of the clients who come to my office to discuss bankruptcy. By the time many individuals who are contemplating filing for bankruptcy come to see me, they have already exhausted their savings and retirement accounts in an attempt to stay afloat. While utilizing savings and retirement funds may seem like a logical step in an attempt to avoid filing for bankruptcy, many clients are shocked and saddened when I tell them that the retirement accounts they just exhausted could have been fully protected in bankruptcy.
The Bankruptcy Code provides for exemption amounts for certain types of property so that an individual filing for bankruptcy can protect their assets up to a capped amount which depends on the type of property. Most retirement accounts are fully exempt. This means that an individual filing for a chapter 7 bankruptcy can still file for bankruptcy protection in order to discharge their credit card debt, medical debt, auto loans, and/or mortgage while having a substantial amount saved in a retirement account. Often times, when an individual is faced with the situation of owning a home they cannot afford or a home that is underwater, they tap into their retirement accounts in an attempt to save the home from foreclosure. But, if the individual truly cannot afford that house, or if the house is so far underwater they may never be able to get out from under it, utilizing retirement funds may be a big mistake! Filing for bankruptcy before touching retirement accounts would allow the individual to walk away from their unsecured debts, walk away from the house they cannot afford or that is underwater, and obtain a fresh financial start all while preserving their retirement accounts for the future.
Don’t wait until it is too late. If you are considering utilizing your retirement accounts in order to avoid bankruptcy, contact us today to discuss your options. The ramifications of filing for bankruptcy are not as severe as most people think, and acting now may allow you to save your retirement money for its intended purpose.