Contrary to common belief, people who file bankruptcy aren’t people who believe they shouldn’t pay their bills. I have yet to meet a client who didn’t want to pay their debts. The reason they came to me was that they simply could no longer make ends meet. For months on end they had tried everything in their power to pay their bills, robbing Peter to pay Paul.
In the depths of desperation, some of them have even drained their IRAs and 401(k)’s trying to make ends meet. I wish they had come to me just a little sooner.
Under bankruptcy law, your IRA and 401(k) is protected. The bankruptcy trustee can not make you liquidate your retirement account to pay your creditors. In fact, in Colorado if a creditor gets a judgment against you, it can not take any money in your IRA or 401(k).
If you are thinking about liquidating your retirement account to pay credit card bills, reconsider. Ask yourself whether or not being able to pay your bills for a short period is really worth putting your financial future and retirement in danger. If you were to discharge those debts in bankruptcy instead, the debts would be eliminated and your retirement account would still be intact.
If you are having a hard time paying your bills and meeting your living expenses, consider talking with a bankruptcy attorney. Bankruptcy is not an easy decision, but liquidating your retirement account may have consequences that you won’t see for years to come and may not accomplish what you hoped.
