Tag Archive for: Retirement

IRA or Retirement Withdrawals in Bankruptcy

One critical part of qualifying for bankruptcy in Charlotte, North Carolina is disclosing to the court your average income over the past six months, as well as your Current Monthly Income. Many individuals filing for Chapter 7 or Chapter 13 are using regular retirement withdrawals, to meet monthly debt obligations. Generally speaking, those withdrawals need to be disclosed but are not counted as income.

Stop Using Retirement To Pay Debt

Retirement funds are excluded from your bankruptcy estate. Simply put, that means the bankruptcy court can not get to your retirement funds. They are protected. So, using those funds to pay debt which would go away in bankruptcy doesn’t make sense. You’ve worked your entire life to build up retirement funds. Save your protected funds, and prepare to file bankruptcy.

Retirement Not Counted as Income

Generally, withdrawals from retirement accounts are not included in the income calculation. These withdrawals are more akin to a withdrawal from a savings account. Additionally, your Charlotte bankruptcy attorney can argue to the court that the retirement account(s) are a limited resource and would not continue indefinitely, thus further distinguishing them from income.

Taxable Income Distinguished

The bankruptcy court defines income differently than the Internal Revenue Service. Just because a withdrawal from your IRA or Pension Plan may qualify as taxable income for IRS purposes, does not mean it’s counted as income in a bankruptcy.

If you have any questions about retirement funds, IRAs or bankruptcy, call 704.749.7747 today to get your questions answered. The call is free and we’re here to help.

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Is My Retirement or 401k Protected In Bankruptcy?

Yes. There are exceptions, but generally speaking your retirement funds are protected from creditors in a bankruptcy. This is why it’s so important to take action and consider bankruptcy before depleting retirement accounts to manage bills. A Charlotte bankruptcy attorney can assist in determining whether your funds are protected, but here are some general rules:

The Law

The Supreme Court has found that the anti-alienation clause protects your retirement accounts from creditors. What this means is that your retirement funds are not included in your bankruptcy estate so it is outside the reach of creditors and the bankruptcy trustee.

Qualified Plans

Provided the funds are held in a qualified plan under the federal pension savings act and have not been transferred into that account for the purpose of avoiding creditors, you will be able to protect them even when filing bankruptcy.

IRAs

I represent a lot of clients who have their own businesses and do not contribute to employer 401k plans. Instead, they often have IRA contributions they need to protect.

IRAs represent a different type of retirement vehicle, owned by individuals. These are protected up to $1 million. Unfortunately, savings and checking accounts are not protected as retirement funds even if you label them as such or intend to use them for retirement purposes. There are exemptions in bankruptcy, however, which can be used to protect money in these accounts.

401k Loans

Lastly, it is not uncommon to have a 401k loan in place when filing bankruptcy. These loans are not dischargable in the bankruptcy but together with back taxes and other similar debt, they will not prevent you from a successful filing.

Call today to speak with me regarding your options—you’ll feel better knowing your rights and I’m happy to have the conversation. 704.749.7747.

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Retirement Funds

Debt is stressful. It becomes overwhelming when it depletes our savings and retirement funds. My clients try so hard to meet their financial responsibilities, that they often deplete not only their savings but also their retirement accounts. All of this before realizing that bankruptcy is the way out.

There’s a better way. Clients who deplete their retirement accounts and IRA accounts to stay afloat for a few more months are often surprised to find out that those funds are protected from creditors in bankruptcy. Yes, that’s right. The funds you keep in a 401(k), 403(b), IRA, or other types of retirement accounts are fully exempt under North Carolina law.  The same is true for many life insurance policies, annuities, and pensions.  This means that your creditors cannot touch these exempt funds whether you file a bankruptcy case or not.

If you are at the point where you are considering reaching into retirement funds to keep making payments on credit cards and other debt, you should speak to a lawyer today. Filing bankruptcy now relieves the financial pressure and you don’t trade your hard-earned retirement accounts in on creditors who have already made a profit off of you.

Reach Out Today!

A conversation with a Charlotte bankruptcy lawyer can provide a lot of clarity. The lawyer’s job is to know the law but also to be the calm during a storm. Your bankruptcy attorney can help you realistically assess your options and if the timing is right, you may even save your retirement in the process.

Email me here or call me at 704.749.7747 to discuss your situation. I’m here to listen and to help you understand the options. Or, if you’d like, complete this 5 minute online evaluation and I will reach out to you with some options.

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