How Will Bankruptcy Affect My Retirement Accounts?
How Bankruptcy Affects Your 401k, IRA and Other Retirement Accounts
If you are considering bankruptcy, you may be wondering how it would affect your retirement accounts. Will your accounts be liquidated to pay creditors? Will you be able to preserve any portion of your retirement savings? Should you drain your 401k to pay down debt rather than file bankruptcy?
At RHM LAW LLP , we will answer all your bankruptcy-related questions, giving you the necessary information to make a sound decision about whether bankruptcy is the right solution for you. For legal advice tailored to your specific situation, call our firm at (213) 344-0043 to arrange a free consultation.
Can Creditors Touch My Retirement & 401K Funds?
Most of your retirement funds such as 401ks and other qualified retirement accounts are protected from creditors and untouchable by a bankruptcy trustee. Since these funds are protected by federal bankruptcy laws, it is rarely a good idea to cash in your retirement accounts to pay off your debts.
In a Chapter 7 bankruptcy, most retirement accounts are classified as exemptions under the Bankruptcy Code. That means these accounts cannot be liquidated to pay your creditors. Under Chapter 13 bankruptcy, none of your assets are taken from you. The monthly repayment plan amount is determined by your income. Your retirement savings are only included in this amount if you want them to be.
Should I Borrow From My 401k to Pay Debts?
No! Before you needlessly drain your 401k or other retirement account to pay down debt, speak with our bankruptcy attorneys. Since retirement accounts are protected under federal bankruptcy law, you may be better off filing bankruptcy and preserving your retirement funds.
You should avoid touching your 401k if you are in debt for the following reasons:
- If you cash out your 401k, you could face steep penalties for early withdrawal and could be making your debt worse.
- If you transfer your 401k funds into another account, these funds will lose their retirement fund exemption status and will be accessible by creditors.
- Transferring funds into your 401k shortly before bankruptcy can also raise red flags with the bankruptcy trustee, who may think you are attempting to commit fraud by shielding assets from bankruptcy.
Your retirement savings represents years of hard work and sacrifice. Losing this nest egg is a major concern. Get the facts from bankruptcy lawyers who have your best interests in mind.
Southern California Bankruptcy law Firm
Do not let fears about losing your retirement accounts stop you from getting the debt relief you deserve. Count on RHM LAW LLP for trusted bankruptcy assistance. We welcome the chance to meet with you and evaluate your financial situation.
Contact our firm to schedule a free consultation today. We maintain offices in Los Angeles and Encino. Payment plans are available.
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
M. Jonathan Hayes Senior Counsel
Matt D. Resnik | Managing Partner Certified Bankruptcy Specialist
Roksana D. Moradi-Brovia | Partner Certified Bankruptcy Specialist
W. Sloan Youkstetter | Associate Attorney Certified Bankruptcy Specialist
Russell J. Stong III | Associate Attorney Certified Bankruptcy Specialist
David M. Kritzer Associate Attorney
Committed to making the process as stress-free as possible for our clients, our Los Angeles bankruptcy attorneys and dedicated staff will handle everything for you. From filling out paperwork through getting end results, we will work to help your case run smoothly and efficiently. We serve our clients in English, Spanish and Farsi.