If you are considering filing for bankruptcy, you might have concerns. There are many myths surrounding the process that may deter you from going through with it. Making the decision to file for bankruptcy can be intimidating, but it can offer you a fresh start and relief from your debt. Additionally, filing for bankruptcy may not affect you quite as much as you expect.
If you’ve diligently saved for retirement in a 401k, you might be relieved to hear that your retirement accounts are usually protected from creditors once you’ve filed for bankruptcy.
How Are My Accounts Protected?
Depending on the type of bankruptcy you decide to file, most qualified retirement accounts including a 401k are safe, meaning you won’t lose these savings when you file for bankruptcy. Federal law protects retirement accounts from creditors and the bankruptcy trustee, so you may not need to worry about bankruptcy affecting your retirement plans.
However, there are a few important things to note regarding your 401k and bankruptcy. Cashing in your 401k to try to pay off certain debts may not be worthwhile because these debts may be discharged in bankruptcy. You do not want to withdraw this money and put it into another account, either as that can remove the exempt status from your 401k.
Your retirement savings may be your most valuable asset, so it’s important to be aware of the rules surrounding 401ks during bankruptcy. However, in most cases you do not have to worry about losing this money during the process, so you can file for bankruptcy with more confidence.