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Many people needlessly use retirement assets to avoid bankruptcy.
It doesn’t take an expert to tell you that financial pressure can push people to commit all sorts of desperate acts. Thus, when someone is experiencing nasty debt collection calls and threats of foreclosure, he or she is easily tempted to look for other sources of funding to help make it go away. One such source of funds that many look to is their retirement funds. Although raiding these funds may make sense in the short term, in the long term doing so can actually weaken your situation. In many cases, it is better to consider bankruptcy to deal with the outstanding debts.
Withdrawing funds from your retirement accounts is generally a poor idea for two main reasons. The first reason is that doing so will cost you money on top of the amount you withdraw, as early withdrawals in these accounts can lead to penalties and tax consequences.
The other reason why touching your retirement assets to pay off your debts is an unwise move is the assets in these accounts cannot be touched by your creditors if you file bankruptcy. As a result, you would give your creditors money that they are legally not entitled to if you use your retirement assets to pay off your debts instead of letting bankruptcy take care of them. Under Tennessee and federal laws, the types of accounts that are exempt include:
Since the law protects these accounts from your creditors in bankruptcy, you get to keep them throughout the process. Once you have completed bankruptcy, you are free of most other debt, but still have your retirement assets.
Although retirement accounts are generally exempt from your creditors, the exemption is not absolute. If you attempt to defraud your creditors by transferring assets to your accounts before you file bankruptcy, the court may revoke your exemption. As soon as you file bankruptcy, all of your recent transactions are scrutinized. If there are any irregularities, the court may lift the exemption on your accounts, allowing creditors to apply the funds within towards your debts.
Due to the treatment of retirement accounts in bankruptcy, there is no need to mindlessly sacrifice what you have worked your whole life to save for the sake of your debts. Depending on your situation, Chapter 7 or Chapter 13 may be able to take care of your debt problem, while preserving your ability to retire one day.
To learn more about the debt relief options available to you, talk to an experienced bankruptcy attorney. An attorney can review your circumstances and tailor a solution that would be best for you. Our firm has successfully defended retirement account funds, 401-k funds, 403-b funds, and IRA accounts from claims of creditors for many years. We are happy to meet with you to discuss the particular issues of your case.
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*$0 down to get your Chapter 7 case started applies to clients who choose to file a Chapter 7 bankruptcy with the U.S. Bankruptcy Court through Kenneth C. Rannick, P.C. We will open a Chapter 7 file for a client with as little as $0 down, however, our office will not file a client's Chapter 7 without an affordable down payment on attorney fees.
*$0 down to get your Chapter 13 case started applies to clients who choose to file a Chapter 13 bankruptcy with the U.S. Bankruptcy Court through Kenneth C. Rannick, P.C. Our law office will file a Chapter 13 without requiring any costs or attorney fees paid upfront for qualified clients who 1) have not had a prior chapter 13 dismissed within the past year, and 2) are not trying to stop a foreclosure within 20 days of filling bankruptcy.We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.
The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship.
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