From credit cards, car loans and mortgages to unexpected health care costs, if you are like many Americans, you may be carrying many types of debt, and you may be behind on your payments.
Facing foreclosure, repossession and harassing creditor calls, you may be considering using money from your retirement savings to help pay the bills. However, depending on your financial circumstances, filing for bankruptcy may be a better option.
In addition to stopping collections actions, filing for either Chapter 7 or Chapter 13 bankruptcy may help you to reduce or eliminate your current debt without sacrificing the money you may need for retirement.
Most retirement accounts are exempt from bankruptcy
Federal and state law protects most types of retirement accounts during bankruptcy, including:
- Tax-exempt plans, like 401(k)s, 403(b)s, and SIMPLE IRAs
- IRAs and Roth IRAs, to a certain maximum
- Pension plans for public employees, including teachers, military members and certain municipal employees
These types of accounts may be safe because they are exempt under bankruptcy law. Other assets you may be able to keep when filing for bankruptcy include personal property like furniture, appliances and jewelry, your vehicle, college savings accounts and equity in your home.
Bankruptcy may help build a better financial future
If you take money out of a retirement account early, you will likely have to pay a significant tax penalty. Additionally, you may be putting your own future at risk if you do not have enough savings when you do need to stop working. Bankruptcy may offer an alternative that lets you get a fresh financial start without losing funds you have worked hard to earn.
