If you are considering bankruptcy, you are probably feeling concerned about your current financial situation. While you may be looking to bankruptcy as an option for a fresh start, you may also have concerns about how a bankruptcy can impact your future financial situation, particularly your retirement accounts. Some people may even consider dipping into their retirement funds to help them make ends meet.
Before you turn to early withdrawal from your retirement accounts or make the decision to file for bankruptcy, it is important to understand the implications it brings—especially if you are counting on your retirement accounts for your future. Here are a few things you will want to know about how a bankruptcy can impact your retirement accounts:
- Retirement Accounts are Exempt: In a bankruptcy, extra money (and in a Chapter 7, extra assets) is taken by the bankruptcy trustee and used to pay back creditors. However, certain property is exempted from being taken and used to pay back creditors. In Georgia, specific exemptions exist to cover retirement accounts in a bankruptcy. Under these exemptions any money you have from a pension, an IRA, a 401(k) and certain other retirement accounts is protected—in other words, you get to keep the money in these accounts.
- Funds in retirement accounts are not used to calculate your monthly payment in a chapter 13 Bankruptcy: In a chapter 13 bankruptcy, you will create a debt repayment plan and will make monthly payments for three to five years. Typically, how much you pay each month is based on your disposable income—the higher your disposable income, the higher your monthly payment. However, funds held in your retirement account are exempt and therefore not used to calculate your monthly payments.
- Although retirement funds are exempt in a bankruptcy, be careful if you are considering an early withdrawal: Withdrawing funds from your retirement accounts such as a 401(k), generally is not a good idea because there are steep penalties and it will decrease funds available to you in the future. If you withdraw the money before filing for bankruptcy and thus have it in the form of cash, that money is no longer exempted and can be taken. In a Chapter 13 bankruptcy, withdrawing from a retirement fund could impact your disposable income—generally withdrawals from retirement accounts during a chapter 13 bankruptcy are approved by the court only for emergencies, or large expenses. Because touching your retirement funds early can have an impact on your life and bankruptcy, it is important to speak with an experienced bankruptcy attorney before taking this action.
Talk to a Skilled Atlanta Bankruptcy Attorney
To fully understand the effect a bankruptcy will have on your overall financial situation, it is important to talk to a skilled Atlanta bankruptcy attorney who can answer all of your specific questions for your personal situation. While your retirement funds are typically safe in a bankruptcy, it is important to speak to someone who can help you understand all the implications—bankruptcy may be the best option to get to a stable place financially, rather than turning to early withdrawal of retirement accounts to pay your debts. To get more information about how bankruptcy could help in your situation, contact the attorneys at The Ballard Law Group for a free case consultation at 404-220-9906.