Submitted by Jen Jones on Sun, 06/28/2009 - 10:45pm
Planning for your retirement early is extremely important, yet appreciating this point can be difficult for people who aren't looking to retire soon. It's even harder to remember the importance of planning for retirement when it remains years or even decades offâ€¦all while the harsh realities of the economy are here today. Credit card companies compound the problem, advertising instant gratification while minimizing focus on long term financial stability. As the credit markets tighten, it's tough to resist cutting back on retirement contributions. For those with a significant nest egg, it's very tempting to cash out now and rebuild later.
Unfortunately, many of us approach bankruptcy as a last resort, an option to be avoided at all costs in the interest of our future financial soundness. In order to avoid bankruptcy, we make serious mistakes that betray the security of our financial futures. Those kinds of mistakes are precisely what this blog is intended to highlight and discourage. Before you make a mistake you may regret years if not decades from now, just to avoid declaring bankruptcy, make sure you have the facts straight. One classic mistake people make in a misguided effort to avoid declaring bankruptcy is dipping intoâ€• yep, you guessed where this is goingâ€• their retirement funds.
But it's your money, so why is spending it such a bad idea, especially if it may save you a lot of trouble or help you avoid bankruptcy? An important clue can be found in the status of retirement funds in bankruptcy law. Did you know that in most states, your creditors cannot touch your retirement unless your actions enable them to do so? 401lks, IRAs, 529 plans- all protected by state and federal exemptions Even your rollovers are protected. Generally, a creditor will only be able to call in money from your retirement funds if you withdraw the money or take out a loan and fail to repay. For this reason, it is very important to avoid taking withdrawing any money from your retirement. Bankruptcy protection can't protect you unless you allow it to!
What if you have high credit card debt, and you are thinking about borrowing against your retirement in order to chip away at those payments? This is exactly the kind of move you want to avoid and exactly the kind of situation where you need to think of bankruptcy as the next step, and not a last resort. Bankruptcy protection can allow you to discharge unsecured debts like credit card debt while keeping your retirement funds safe for the time they're meant to be used: retirement. You may also be creating a whole new host of problems for yourself by borrowing against your 401k, even if you are able to address some issues in the short term.
What if you borrow against your retirement but then can't repay it on time? You will likely face some serious tax consequences; remember, recent tax liabilities are one area where bankruptcy protection won't be able to help you. Or what if you borrow against your retirement funds, but then you lose your job? You may be responsible for repaying the loan almost immediately, and this will naturally be difficult if you are out of work. As these scenarios illustrate, dipping into the well of retirement funds can be more trouble than it's worth. Bottom line, if you're thinking about withdrawing from your retirement to deal with your debt, it's time to call a bankruptcy attorney. Protect your financial future, file bankruptcy now!
From: The Law Offices of John T. Orcutt, with convenient office locations in Raleigh, Durham, Fayetteville, and Wilson. Call (toll free) +1-919-646-2654, to set up a free, confidential debt consultation. Visit www.billsbills.com for more information.
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