Can retirement assets be used to pay debts prior to filing bankruptcy?

May 18, 2013 (Press-News.org) People experience financial problems for a wide range of reasons. Some may be having trouble paying back credit card balances that have high interest rates. Those fresh out of college may have difficulty finding a job, and be unable to make payments on student loans. Homeowners could be stuck with mortgage payments that are much more than their home is worth. Injuries and illnesses may have led to expensive medical bills.

Some individuals struggling with financial problems may look to their 401(k) accounts as a potential source of income in an effort to delay filing for bankruptcy. They may withdraw some of the funds that they have saved for retirement, and use the money to pay off credit card bills or other expenses. Withdrawing funds from retirement accounts can be an extremely bad idea. Generally, when an individual removes money from the account, he or she will have to pay taxes on the money that they withdraw. This may cause additional financial struggles, meaning that the debtor is still going to have difficulty repaying debts that are owed.

Also, most retirement accounts, including the majority of IRA's, 401k's, pensions, and annuities, are exempt under bankruptcy rules. This means that these funds will not be taken by the Bankruptcy Court to pay off creditors. The debtor will be allowed to keep the money that has accumulated in the account after filing for bankruptcy.

It is extremely important that debtors considering using their 401(k) and other retirement account assets to pay bills first speak to an experienced bankruptcy attorney about the potential consequences of these actions. A bankruptcy attorney can guide you on how to eliminate your debts while saving your retirement for when you really need it....during your retirement years.

Although most retirement accounts are exempt from the Bankruptcy Court, people should usually not convert their assets into their retirement accounts prior to filing for bankruptcy protection. During the proceedings, the Bankruptcy Court will review the debtor's prior financial history. If the individual transferred assets to the account to avoid losing them during the bankruptcy, the account could lose its exempt status. This could significantly reduce the amount of money that a person will have when he or she retires. An experienced bankruptcy attorney can explain how to properly protect your assets prior to filing a bankruptcy.

Filing for bankruptcy is not something that you should do on your own. Speak to an attorney who specializes in bankruptcy law to understand how you can regain control over your financial situation. You have unique assets and goals, and it is important to work with someone who can help you find the right solution for your problems.

When you are first starting to experience financial problems, you should speak to a bankruptcy attorney about the options that are available to you, including saving and protecting your retirement accounts. If you wait too long to address these issues with a bankruptcy attorney, you may place yourself at a greater financial risk and it may take much longer to recover from your financial problems.

Article provided by Harold Jarnicki & Associates
Visit us at www.haroldjarnickiandassociates.com