When financial trouble strikes, people get creative trying to make ends meet. One common strategy is to use retirement money to pay monthly bills. As a bankruptcy attorney serving clients in Franklin, NC, I speak to people daily about ideas they have come up with to deal with their debt problems. I almost never suggest cashing out retirement savings to pay on unsecured debt.
A couple things to consider:
(1)You can protect, or keep, your 401(k) or other retirement funds in a Chapter 7 bankruptcy case because they are completely exempt.Creditors can’t touch them.
(2)The majority of people I speak with who consider tapping into retirement money do not have enough to pay their debts in full.They frequently exhaust their retirement accounts, and still need a bankruptcy case.The result is the same at the end of the day, except they no longer have their retirement accounts.
(3)Borrowing money from a 401(k), or liquidating it, can cause tax problems with the IRS due to penalties, fees, and capital gains taxation.
(4) You can’t work forever, so you need retirement money in order to establish a long-range financial plan moving forward.
If you would like to speak to someone regarding your financial situation, and live in Western North Carolina, I would be pleased to speak with you during a free, initial, bankruptcy consultation.