Are Retirement Funds at Risk When Filing for Chapter 7 Bankruptcy?
If you find yourself retired, and looking towards a future on a fixed budget, you will probably be more wary of making large payments towards overwhelming credit card debt. Many in this situation waver back and forth over the decision of whether or not to use their retirement funds to pay off credit card debt and worry about their day-to-day existence later.
In my opinion, this is not a good idea. I applaud the fact that the decision is a difficult one. The debt is yours; a result of purposeful decisions and purchases. You could use a large chunk of your retirement to pay it off free and clear. Many, if asked, would respond with this as their final answer. It does seem like the right thing to do. But it’s not the smart to do and, arguably, not necessarily the best thing to do for the individual or community either.
We live in a consumer based society. That means that our overall economic success depends heavily on the average consumer consuming. We need to buy things. When a retired individual is burdened by debt they don’t use their retirement income/savings to buy new clothes, go to dinner, travel, etc. This hurts the rest of us. Society as a whole benefits more from the individual’s ability to spend more money than that same individual paying interest on things purchased in the past. Credit card companies run a very profitable business. They aren’t hurting. Accounts in default do not faze them. They don’t have to raise their fees or charge more interest to other cardholders as a result. They’re doing fine. They’re business plan incorporates this very situation and it is working very well for them. Other credit card holders will not suffer if individuals who find themselves in overwhelming debt need to seek a solution in bankruptcy.
When you decide to file, you should remember that your 401(k) money is safe from the bankruptcy process only as long as you leave it in that account until the bankruptcy case is over. It’s very important that bankruptcy filers do not access their retirement funds during the course of their bankruptcy. If they do, the funds could be in jeopardy of being included in the assets used to pay off creditors.
If you need help determining what assets are safe from bankruptcy and whether or not it makes sense to file for bankruptcy discharge, contact the southern California bankruptcy attorneys at Westgate Law.