Choosing to walk down the path of bankruptcy is something that can absolutely change your entire life. It’s hard to pick through the attitude that a lot of the media has towards bankruptcy. If you let the media tell it, everyone declaring bankruptcy is just looking for a free ride out of their problems. If you haven ‘t woken up and had to make the decision on whether to eat or pay the bills, then you haven’t walked through some of the choices that many people facing bankruptcy have had to make time and time again.
If you’ve worked hard all your life and built up a nest egg, you might think about using it to cover your debts. However, when you make the decision to take future savings and apply it to debts that are covered under the bankruptcy code, you’re actually throwing good money after bad purposes.
You see, the assumption made here is that the bankruptcy trustee will simply seize your retirement account and use it to pay off your debts. That’s just not true at all — there are exemptions made for all types of different assets. For example, if you have a modest home, you are most likely not going to be forced to give it up in the bankruptcy. This is because you have to live somewhere. Same with your car — you have to get back and forth to work and to take care of your children and/or other family members. The bankruptcy process is a matter of public policy, which means that it’s not designed to be incredibly cruel. Now, if you have a five million dollar home, you can bet that you’re not going to be able to keep that. In addition, if you’ve got a luxury sports car hiding in your asset sheet, that’s going to be taken away from you. However, if you’ve got a 3 year old car that you’re making modest payments on, you’re highly unlikely to lose that car just because you filed bankruptcy.
But let’s get back to the retirement account. It’s all about amounts here, as well as the type of retirement account that we’re talking about. A 401(k) that has less than a million dollars in value is going to be exempt — over that amount and you can expect some trimming to be done. The assumption is made here that a million dollars is for the future years where you will not be able to work. There’s no reason to think that you will be expected to take your precious savings and put it toward debts that will be discharged anyway. Be cautious of any financial planner that tells you otherwise, or tries to make you feel guilty because you want to hold onto that money. There may come a time where you’re not able to replace that money easily. If you end up taking loans out of the account to pay off debts that can be discharged, you’re only slowing down the growth of your money tremendously.
Of course, it has to be said that if you have a million dollars in the retirement fund for the future, you will definitely be better off hiring a bankruptcy attorney. Assets of any kind mean that you need to have legal representation at your side. Even if you think you won’t need it, running your case details over with a qualified attorney that has the bankruptcy experience is definitely a good thing.
The last thing that you will want to do is try to hide the retirement account. Thanks to bank disclosure laws today, you cannot hide money in any way, shape or form. It’s very difficult to do, and if you’re found out to be purposefully hiding assets, you’re going to end up losing your ability to discharge your debts. That’s not even the worst thing that can happen — you can be thrown in jail for bankruptcy fraud. It’s a federal issue, and it’s a very serious one. You don’t want to walk down this road — and any bankruptcy attorney worth their retainer will tell you the same thing.
Overall, your retirement is definitely safe even in the face of bankruptcy. So don’t pillage your accounts to take care of problems that are already covered by public policy and established precedent!