Are Your Retirement Funds In Danger Because of Bankruptcy?
Are you facing financial issues and thinking about hiring a chapter 7 bankruptcy lawyer in Las Vegas, but are concerned doing so will affect your retirement funds? At DeLuca and Associates we understand your fears. Although there are exceptions, generally retirement savings are not in danger if you file for bankruptcy.
What Creditors Can’t Do
Retirement savings plans including 401ks and government retirement accounts such as CalSTRS and IRAs cannot be touched by creditors as they are not considered part of bankruptcy estate. Creditors also cannot remove funds from Social Security benefits and can’t take money from pensions. Whether expecting or currently receiving a pension, creditors are not permitted to demand higher payments or cash it out, especially if you are receiving a set amount each month.
Are Your Retirement Savings at Risk?
If you are still concerned about your retirement savings in regards to bankruptcy, there’s an easy way to determine whether your funds are safe or not. If you cannot withdraw all funds without tax penalties, you’re just fine. You have a traditional retirement account that won’t be affected by bankruptcy. However, if you’ve simply opened a standard account and deemed it your “retirement fund,” such funds will be considered assets when filing for bankruptcy.
Those that commonly have non-traditional retirement accounts are self-employed workers. Even if they think the account was set up correctly, they may come to discover otherwise. If you are self-employed and believe this may be the case, talk to your accountant or your bank.
Will Tax Liens Affect Your Retirement?
Although rare, another issue that may affect retirement accounts is tax liens. The IRS usually won’t look to retirement accounts to settle tax liens unless the amount owed is particularly outrageous and there are no other options available. If you are facing this issue, bankruptcy can help you pay or defer your debts.
Don’t worry, you can still make deposits in your retirement account while enmeshed in a bankruptcy case. You might not even have to pay as much to creditors due to retirement contributions. Don’t close, cash out or transfer your retirement account either, as this can negatively affect your case.
Have any tips regarding bankruptcy and retirement accounts you’d like to share? Leave a comment and tell us your story!