Before you liquidate your retirement accounts to pay down your debt, talk to an experienced bankruptcy attorney.
Video Transcript
Hello, this is Darrell Castle. I’m an attorney licensed to practice law in the state of Tennessee and on this video, I’m talking about retirement accounts, specifically, how can you save your retirement account in bankruptcy – if you have to do a bankruptcy, what happens to your retirement account?
But a better question would be, what happens to your retirement account before you do the bankruptcy? Because what happens to so many people is they get in financial trouble – perhaps they have a small business, it’s not doing too well or they lost their job or something like that and they have a retirement account (401k, IRA or something of that nature) that they’ve put money into or their employer’s put money into over a period of years. So the natural tendency would be to take that retirement account, cash it in, thus owing income tax on it that’s not dischargeable in bankruptcy and using that money to pay down debt.
But so many people – I see it time and time again – do that and at the end still end up doing a bankruptcy because it does not solve their problem. It does not get them a new job and it does not make their small business work again.
So the question is, what do you do with that retirement money before you do a bankruptcy if you have to do a bankruptcy? And the answer is that you shouldn’t do anything with it because it’s completely exempt in bankruptcy.
You can keep your retirement account if it’s a normal retirement account – 401k, IRA, things of that nature, things that are tax deductible of the money you put in – it is completely exempt in bankruptcy so you don’t have to worry about it at all and bankruptcy is a solution that a retirement account cannot provide.
In other words, it may provide enough money to pay some debt, but it’s going to leave you having to pay income tax.
I’ve seen that many times too. A person doesn’t have a retirement account anymore and he still owes income tax now that is not dischargeable.
So, keep your retirement account if you have to do a bankruptcy, do the bankruptcy either a Chapter 7 or Chapter 13. Your retirement account should be completely exempt if you have a halfway competent lawyer.
That is the best thing to do, folks. Get some advice before you cash in that retirement account. That is my advice to you right now.
If you have any questions or if you’re considering bankruptcy, give us a call at (901) 327-2100 or contact us online.