Retirement accounts are important tools for retirement planning. One of the biggest myths about bankruptcy is that you will lose everything, including your retirement accounts. However, nothing could be further from the truth. While bankruptcy cannot magically wipe away all the debt you’ve incurred, it does help you keep your retirement account intact.
Allowing you to retain your retirement account is one of the most important benefits of adequately filing bankruptcy with help from an experienced bankruptcy lawyer in San Diego. However, you should still learn more about what you need to do to keep your retirement funds and what you should avoid doing to not jeopardize them.
How can I keep my retirement accounts in bankruptcy?
You can keep almost all retirement accounts including your 401k, 403b, pension plans and IRAs when filing either Chapter 7 or Chapter 13 bankruptcy. This is a big relief for bankruptcy filers because they get to hang on to their retirement accounts and at the same time get a fresh start and wipe out their debt.
However, while this is undoubtedly true, it’s important to also know what you have to avoid before filing bankruptcy. Avoid doing any of the two following actions:
Don’t make early withdrawals
Many times individuals make the mistake of taking an early withdrawal from their retirement account and then use it to pay debt that would have been discharged in a bankruptcy. This includes loans and cashing out part of a retirement account. Not only is this one of the most common, but also one of the biggest mistakes you can make prior to successfully filing bankruptcy.
The entire reason behind filing for bankruptcy is to receive relief for some of the debt you have accumulated. Withdrawing from your retirement account early will leave you with less financial security in times when you need it most. Indeed, draining your retirement account is a big mistake especially because you can preserve those funds when filing bankruptcy.
Additionally, early withdrawal of retirement funds creates a big IRS penalty and tax liability. This is something you definitely want and have to avoid in order to maximize your chances of a successful bankruptcy.
Don’t use your retirement account to pay off debt
We keep seeing people who have depleted their retirement accounts trying to pay off debt that would have been wiped out in a bankruptcy. But, we have to advise that this is the last thing you should consider doing, as bankruptcy is a process that will help eliminate some of your debt.
That is why even thinking about using retirement funds to repay debt is a sure sign of financial trouble that indicates that you should immediately contact an experienced bankruptcy attorney. They will be able to review your retirement accounts to make sure they are protected in bankruptcy.
Contact an experienced bankruptcy lawyer in San Diego
Now that you know almost all retirement accounts are protected, don’t jeopardize your golden years. Instead, find dependable legal professionals who will help you learn the details of different types of bankruptcy and help you choose the most suitable option for your particular situations. This is the best way for preserving your retirement account and ensuring a successful bankruptcy claim.
Take the first step and contact the Law Offices of Mark L. Miller at (619) 574-0551 for a free consultation to discuss planning for your financial future. We are the leading bankruptcy lawyers in San Diego, and we have the knowledge and the qualifications necessary to help you. You can easily locate our offices in the vicinity of Old Town San Diego State Historic Park. We’re here to help you any way we can.