Many people in the Indianapolis area have run into financial trouble at least once in their life. A person may accumulate too much credit card debt or medical debt because of a lost job or an unexpected accident or illness. Crushing debt can be a stressful situation for a person and getting out of debt can be important. For those who want a fresh start, bankruptcy can be a good option, but a person may wonder if their retirement account will be affected.
Many people have a retirement savings account through their job. They rely on this account to save money so that they can some day retire comfortably. Regardless of their current financial struggle, they want their retirement account to remain untouched.
Most retirement accounts are protected in bankruptcy
If a person needs to declare bankruptcy, they should know that usually their retirement accounts are protected. Under federal law, IRAs and most tax-exempt retirement accounts cannot be taken by creditors. These include 401(k), 403(b), profit-sharing plan and defined benefit plan.
IRA funds need to be kept in IRA plan
If a person pulls out money from their IRA, that amount will not be protected from bankruptcy court.
Try not to use IRA money to pay down debt
Those who have extreme debt may look at their retirement accounts as ways to pay down the unsecured debt from credit cards and medical bills. This is usually not a good idea because there is a penalty for withdrawing the money and the bankruptcy would have discharged the debt. A person will also lose out on money they will need in retirement.
Contact a bankruptcy attorney
An attorney who specializes in bankruptcy can help their client understand their options and help them make a fresh start. An attorney understands the stigma associated with bankruptcy and can help their clients feel comfortable with the process.